How Retirement Savings are Changing in 2024 - Rodgers & Associates

How Retirement Savings are Changing in 2024

Every year brings tax changes that have the potential to impact how people save for retirement. At Rodgers & Associates, our goal is to stay on top of the changes and distill them into relevant takeaways for our clients and readers. Here’s how contri­bution limits are evolving for a variety of account types, plus some strategies for making your contri­bu­tions work even harder.

Contributions to Traditional and Roth IRAs

One of the most signif­icant changes for 2024 is that the maximum annual contri­bution for tradi­tional IRAs and Roth IRAs jumps from $6,500 to $7,000 (adjusted for inflation), making it easier to put more pre-tax dollars toward retirement. If you’re age 50 or older, you can still save an additional “catch-up contri­bution” of $1,000, which is unchanged from 2023.

While there aren’t age limits on making these contri­bu­tions, there are some income parameters to keep in mind:

  • For both tradi­tional and Roth IRAs, a taxpayer’s earned income must at least equal the amount of the contri­bution. That is, if you make less than $7,000 per year, your maximum contri­bution is capped at your total earnings.
  • For Roth IRAs, taxpayers can directly contribute to a Roth IRA in 2024 until their adjusted gross income (AGI) is $230,000 to $240,000 for married couples filing jointly. For singles and heads of household, the income phase-out range is $146,000 to $161,000.
  • For tradi­tional IRAs, there isn’t a contri­bution restriction based on earnings, only on the ability to make pre-tax contri­bu­tions. In 2024, taxpayers can make tax-deductible contri­bu­tions to a tradi­tional IRA until AGI exceeds $123,000 to $143,000 for couples and $77,000 to $87,000 for singles. This limitation only applies to taxpayers covered by a workplace retirement plan.
  • For joint filers where only one spouse is covered by a plan, the phase-out range for deducting a contri­bution for the uncovered spouse starts at $230,000 of AGI and ends at $240,000. The taxpayer can still contribute to a tradi­tional IRA if income exceeds these limits, though the contri­bution won’t be deductible.

Converting Non-Deductible IRA Contributions to Roth IRAs

Taxpayers with higher income can consider making non-deductible IRA contri­bu­tions and converting them to Roth IRAs, since there is no longer an income limitation on conversions.

This strategy is called a backdoor Roth IRA contri­bution, and it isn’t a tax dodge. Trans­ferring assets from a tradi­tional IRA to a Roth IRA is a taxable event, so you’ll still owe taxes on any funds that haven’t been taxed previ­ously. If the IRA has been funded solely with non-deductible contri­bu­tions, only the earnings will be subject to tax during the transfer.

Depending on your circum­stances, you may also need to consider (or talk to your adviser about) the pro-rata rule. This “rule” refers to how the IRS accounts for after-tax and pre-tax funds in an IRA when the taxpayer does a partial Roth conversion. In short, all pre-tax contri­bu­tions to an IRA plus earnings are considered pre-tax and become taxable when converted to a Roth IRA. So if you’re a taxpayer with pre-tax money in existing IRAs, it’s especially important to consider the impact of using the backdoor technique.

Further, if you’re a working taxpayer with a 401(k) that allows after-tax contri­bu­tions, upon retirement you’ll be able to roll over these after-tax funds directly to a Roth IRA.

Contributions to Employer-Sponsored Retirement Accounts

If you contribute to a 401(k), 403(b), or 457(b) plan, here are some changes to keep in mind:

  • The pre-tax limit for contri­bu­tions to these account types increases to $23,000 in 2024, plus an additional $7,500 catch-up for those age 50 or older.
  • For defined contri­bu­tions plans, the annual additions limit increases to $69,000.
  • Self-employed individuals and small business owners who use a SEP IRA or a solo 401(k) can contribute up to $69,000 in 2024. (This total is based on the amount an employer can contribute using the compen­sation limit of $345,000 for 2024.)

A note for those looking ahead: Based on the SECURE 2.0 Act, in 2026 all catch-up contri­bu­tions for individuals with a modified adjusted gross income (MAGI) over $145,000 will be classified as Roth-style contri­bu­tions. While making catch-up contri­bu­tions on an after-tax (Roth-style) basis means paying taxes on retirement savings in the year they’re earned, the investment earnings grow tax-free from there.

Additional Contribution Changes in 2024

A few other signif­icant (yet miscel­la­neous) changes to note:

  • For SIMPLE account holders: The limit on SIMPLE retirement account contri­bu­tions increases to $16,000 in 2024. The SIMPLE catch-up limit remains at $3,500.
  • For low- and moderate-income earners: The income limit for the saver’s credit for low- and moderate-income workers is $76,500 for married couples filing jointly for 2024, $57,375 for heads of household, and $38,250 for singles and married couples filing separately.

While tax changes often feel complex, knowing how to work with them is an important part of saving for retirement. As always, our advisers are here to help you make sense of it all—and to ensure your retirement savings strategy is tax efficient.

Rick’s Tips:

  • In 2024, the maximum annual contri­bution for a tradi­tional or Roth IRA is $7,000.
  • Taxpayers age 50 or older can also make catch-up contri­bu­tions of $1,000.
  • A strategy called the backdoor Roth IRA contri­bution allows taxpayers over the income threshold to fund a Roth by making a tradi­tional IRA contri­bution and then converting it to a Roth.