If you want to beef up your retirement savings in 2024, the new 401(k) contribution limits can help. Last month, the IRS announced the new inflation-adjusted limits for retirement accounts, and they're better than ever.
If you haven't paid attention to your 401(k) in the past, now is the time to plan ahead so you can crush your contribution goals.
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Higher 401(k) contribution limits for 2024
The annual employee contribution limit for 401(k) retirement plans is increasing from $22,500 to $23,000 in 2024. The catch-up contribution for savers 50 and over is still $7,500, bringing the total contribution limit to $30,500. This represents the highest contribution limit for 401(k) accounts that we've ever seen. In 2019, the contribution limit stood at $19,000 and now, four years later, you can contribute an extra $4,000 to your 401(k).
If you and your employer are both contributing to your 401(k), the total contributions to the account can't exceed $69,000 in 2024. That's up from $66,000 in 2023. For retirement savers 50 and over, the total contribution limit will jump to $76,500, which includes catch-up contributions.
These higher contribution limits make it easier to reach your retirement savings goals. Let's say you're 55 years old and want to beef up your retirement savings. If you contribute the maximum amount to your 401(k), you'll likely be able to add another six figures to your net worth within the next three years.
How a 401(k) works
A 401(k) is a big deal because it allows you to save more money for retirement than a traditional IRA or Roth IRA. It's a workplace benefit that can help you build your nest egg and live the retirement you've always dreamed of.
But if you're just getting started with your 401(k) goals, you probably didn't get a crash course on how it all works. So if you're on the fence about contributing to a 401(k) in 2024, here are a few benefits to keep in mind:
- Tax-advantaged savings
- Automatic deductions from your paycheck
- Higher contribution limits
- Flexibility to change your contribution amount during the year
In addition to your contributions to a 401(k), your employer can also chip in and help you beef up your retirement savings. You can ask your employer if they offer an employer match and what the rules are.
Many employers offer a 50% match, up to a certain percentage of your salary. The free money you get from your employer is an extra incentive to contribute to a 401(k) plan.
Your employer's contributions to your 401(k) will not impact the amount that you can contribute. If you're under 50 and want to max out your 401(k), you can still contribute the full $23,000, even if your employer contributes $3,000 in 2024.
Take advantage of the highest 401(k) contribution limit yet
Although there's only a modest bump of $500 for 401(k) contribution limits, those extra dollars can get you one step closer to your retirement goals. Plus, when the money is invested, your 401(k) balance can be worth more by the time you retire.
Now is a great time to determine how much you want to contribute to your 401(k) and set up automatic contributions through your employer. If you're under 50 and want to max out your account, you can contribute around $1,917 every month. If you get paid bi-weekly or weekly, do the math to determine how much you need to set aside to reach your goals.
Since 401(k) contribution limits are higher than traditional and Roth IRAs, you have an opportunity to boost your retirement savings by thousands of dollars in 2024. You'll also get a chance to snag a tax benefit in the current year, which can come in handy if you're earning more money.
