Retirement Limits & Social Security Updates

A Comprehensive Guide to Retirement Plan Changes and Social Security Benefits in 2024

Staying informed about the changes in retirement plan contributions and Social Security benefits is critical. 2024 brings forth significant modifications in contribution limits and adjustments to Social Security that will affect retirees, contributors, and beneficiaries. This article aims to provide a clear and concise overview of these changes.

2024 Retirement Plan Contribution Limits

401(k) Plans

For individuals under the age of 50, the maximum 401(k) plan contribution for 2024 is set at $23,000, signaling a notable increase of $500 from the previous year. Those aged 50 or older are eligible for catch-up contributions, which will also see an increase, allowing a total 401(k) contribution limit of $30,500 in 2024.

Traditional IRA

Contribution limits for traditional IRAs will see a rise of $500 in 2024. Those under 50 can contribute up to $7,000, with a catch-up contribution limit of $1,000, making the total maximum contribution $8,000.

Roth IRAs

Like traditional IRAs, Roth IRAs will see an increase in the contribution limit to $7,000 for 2024, with catch-up contributions remaining at $1,000.

Income phase-outs also affect Roth IRAs. In 2024, these thresholds have been raised to range between $146,000 and $161,000 for singles and heads of household, an increase from the range of $138,000 to $153,000 in 2023. Similarly, for married couples filing jointly, the income phase-out bracket has been extended to fall between $230,000 and $240,000 for 2024, up from the range of $218,000 to $228,000 in 2023. Additionally, like traditional IRAs, the phase-out range remains constant for a married individual filing a separate return and contributing to a Roth IRA, staying between $0 and $10,000.

SIMPLE Retirement Accounts

A SIMPLE IRA plan, which expands to a Savings Incentive Match Plan for Employees, offers an accessible option for small businesses not currently providing a retirement plan to contribute to IRAs.

In 2024, the contribution limit for individuals to their SIMPLE retirement accounts will increase to $16,000, elevated from $15,500 in 2023. Meanwhile, the catch-up contribution cap for employees aged 50 and above participating in SIMPLE IRA plans maintains an additional limit of $3,500 for 2024, allowing a total potential contribution of $19,500 for those over 50.

Savers Credit

The Savers Credit, or the Retirement Savings Contributions Credit, offers eligible taxpayers a tax credit for contributing to an IRA or employer-sponsored retirement plan. Specifically designed for low- and moderate-income workers, this credit provides financial incentives for retirement savings.

For the tax year 2024, the income thresholds have been adjusted. Married couples filing jointly now have a limit of $76,500, increased from $73,000 in 2023. Similarly, the threshold for heads of household is raised to $57,375 in 2024, up from $54,750 in 2023. Additionally, for singles and those married filing separately, the new limit for 2024 is $38,250, elevated from $36,500 in 2023.

Defined Benefit Plan

Defined benefit plans, once more prevalent and often linked with traditional pension systems, have declined in popularity. Nevertheless, these plans persist for certain businesses that value the deductions accessible for employer contributions.

For the upcoming year, the annual benefit limit within a defined benefit plan is set to rise to $275,000 in 2024, an increase from $265,000 in 2023.

QLAC

A qualified longevity annuity contract (QLAC) provides the opportunity to transform funds from a qualified retirement plan, such as an employer-sponsored plan or IRA, into an annuity. The set dollar limit for premiums paid for a QLAC was raised to $200,000 in 2022 for contracts bought or received in an exchange on or after December 29, 2022.

Qualified Charitable Distributions

A qualified charitable distribution (QCD) enables the direct transfer of funds from your IRA to a qualified charity. These funds can count towards meeting your required minimum distributions (RMDs) for the year, and the donated amount is excluded from your taxable income, bypassing the need for itemization.

The maximum sum of QCDs that can be exempted from your gross income has risen to $105,000 in 2024, up from $100,000 in 2023.

Moreover, under the SECURE 2.0 provisions, there is an opportunity for a one-time choice to make a QCD to a split-interest entity. Initially set at $50,000, this amount is adjusted for inflation and will stand at $53,000 in 2024.

2024 Retirement Plan Contribution Limits

Cost-of-Living Adjustment (COLA):

The highly anticipated annual COLA adjustment for 2024 stands at 3.2%, providing a significant boost to the average monthly benefits for retirees and beneficiaries. The typical retired worker’s monthly check is set to increase by $59, reaching $1,907, and a retired couple both receive benefits to $3,033, up $94 from $2,939 this year. Despite this increase, concerns linger regarding the erosion of purchasing power due to underweighted inflation adjustments.

Maximum Taxable Earnings Cap:

The maximum taxable earnings cap for payroll tax is set to rise to $168,600 in 2024. This adjustment primarily impacts high-earning workers, affecting approximately 6% of contributors and leading to an increased payroll tax liability.

Claiming Benefits and Withholding Thresholds:

Changes in withholding thresholds for early filers and the retirement earnings test will offer flexibility to those who claim benefits before reaching full retirement age. These changes allow for increased earned income thresholds before benefits are withheld.

The changes in retirement plan contribution limits and Social Security benefits for 2024 are worth consideration for individuals planning their retirement. For example, if you earn $22,000 a year through part-time work and your hourly rate isn’t increasing in 2024, you may want to avoid taking on more hours. This way, you won’t exceed the $22,320 mark. Staying informed about these adjustments helps in making strategic decisions for financial planning. While these changes bring opportunities and challenges, understanding their implications is vital to ensuring a secure and well-prepared retirement.

Are you ready for these changes? Hopefully, you are!

If your retirement savings strategy for 2024 is already plotted, you can get a free second opinion of it from our financial advisors. Click here to set up a no-obligation meeting with one of them today.