The IRS recently issued Notice 2023-75 which provided the current year increase for contributions to retirement plans. The annual contribution limit for 401(k)s increased to $23,000 for 2024 (from $22,500 in 2023). For IRAs, yearly contributions can reach up to $7,000 for 2024 (from $6,500 in 2023). Employees aged at least 50 who participate in qualified plans can make an additional “catch-up” contribution; however, the contribution limits remained the same for 2024. The catch-up contribution limit in 2024 stays at $7,500 for 401(k) plans and $1,000 for IRAs. As a result, those aged 50 and above can contribute a total of $30,500 to their 401(k) accounts beginning in 2024, as well as a maximum of $8,000 to their IRAs.
As we get closer to year end, it is important for traditional IRA owners in pay status to remember to take their required minimum distribution (“RMD”). Those who miss their RMDs are subject to substantial tax penalties. For a number of years, traditional IRA owners were forced to take RMDs starting at age 70 ½, however, the RMD age has been increasing recently. For now, a traditional IRA owner must generally begin to take an RMD by April 1st of the year after the year in which he or she turns 73 (the required beginning date). It important to make sure that you are taking all required RMDs as there are substantial tax penalties for the failure to do so.
If you have any qualified retirement plans, you may find it advantageous to maximize the amount of contributions so you can avail of the tax benefits provided by law to employee retirement savings. With the passage of the SECURE 2.0 Act of 2022—a recent law seeking to expand coverage and increase retirement savings—this can be a timely opportunity for you to explore your options in retirement planning. The rules governing retirement plans are complex and an attorney should be consulted with any questions.
Thank you to Azi Baer for this week’s Tax Tracker.
