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Maximize Contributions

It is important to maximize retirement account contributions for several reasons. Here are the top 3.

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  1. Tax benefits: Retirement accounts such as traditional IRAs, Roth IRAs, and 401(k) plans offer tax benefits that can help you reduce your current tax bill and save more for retirement. For example, contributions to a traditional IRA or 401(k) plan are made on a pre-tax basis, which means you don't pay taxes on that income until you withdraw it in retirement. Roth IRA contributions are made on an after-tax basis, but qualified withdrawals are tax-free.

  2. Compound interest: Retirement savings grow over time thanks to the power of compound interest. By contributing as much as possible to your retirement accounts early on, you give your savings more time to grow and compound over the course of your career.

  3. Retirement security: Maxing out your retirement account contributions can help ensure that you have enough savings to support your lifestyle in retirement. With the cost of living rising every year, it's important to save as much as possible to avoid running out of money later in life.

IRAs

  1. For 2024, the contribution limits for Traditional and Roth IRAs have increased: individuals under 50 can contribute up to $7,000, while those 50 or older can contribute up to $8,000.

  2. The income thresholds for Roth IRA contributions have also been adjusted. For single filers, the ability to contribute phases out between a modified adjusted gross income (MAGI) of $146,000 and $161,000. For married couples filing jointly, the phase-out range is between $230,000 and $240,000 of MAGI.

401k

For 2024, the contribution limits for 401(k) plans have increased. Individuals under 50 can now contribute up to $23,000, while those aged 50 or older can make an additional catch-up contribution of $7,500, bringing their total limit to $30,500.

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It's important to note that some employers may have their own contribution limits or specific plan rules. Therefore, it's advisable to consult with your employer to understand any additional restrictions or guidelines that may apply to your 401(k) contributions.

SIMPLE IRA

For 2024, the contribution limits for SIMPLE IRAs have increased. Employees under 50 can contribute up to $16,000, while those 50 or older can make an additional catch-up contribution of $3,500, totaling $19,500.

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Employers are required to contribute in one of two ways:

  • Matching Contribution: Match employee contributions dollar-for-dollar up to 3% of the employee's compensation.

  • Nonelective Contribution: Contribute 2% of each eligible employee's compensation, regardless of whether the employee makes contributions. For 2024, the compensation limit considered for this contribution is $345,000

Solo 401k

For 2024, the contribution limits for Solo 401(k) plans have increased. Individuals under 50 can contribute up to $23,000 in employee deferrals, while those 50 or older can make an additional catch-up contribution of $7,500, totaling $30,500.

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In addition to employee contributions, employers can make profit-sharing contributions up to 25% of the employee's compensation. However, for self-employed individuals, this percentage is adjusted to account for self-employment taxes. The combined total of employee and employer contributions cannot exceed $69,000 for individuals under 50, or $76,500 for those 50 or older.

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These adjustments aim to enhance retirement savings opportunities for self-employed individuals and small business owners.

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