In a recent update, the Internal Revenue Service (IRS) has unveiled adjustments to the contribution limits for tax-advantaged retirement and health care accounts for the year 2024. This means you’ll have the opportunity to put more money into these accounts, offering potential benefits for your financial future. For 2024, the contribution limit for Individual Retirement Accounts (IRAs) has increased to $7,000, up from $6,500 in the current year.
Individuals aged 50 or older saving for retirement can still make a “catch-up” contribution of $1,000. Keep in mind that while traditional IRA contributions may not always be tax-deductible, all your earnings can grow on a tax-deferred basis. Roth IRA contributions may be limited based on income, but earnings can grow tax-free, provided you meet certain conditions.
Have the Rules for 401(k) Retirement Plans and HSAs Changed?
The contribution limit for 401(k) plans sees an increase to $23,000 for 2024, up from $22,500 in the present year. The catch-up contribution limit for individuals aged 50 and older remains at $7,500. These limits also apply to 403(b) plans and 457(b) plans. Contributions to 401(k) plans are pre-tax, with earnings growing tax-deferred. If you have a Roth 401(k) option, contributions are after-tax, but earnings can grow tax-free under specific conditions.
In 2024, the annual contribution limit for Health Savings Accounts (HSAs) is $4,150 for individuals and $8,300 for family coverage. HSAs allow you to use funds for out-of-pocket health care costs, and withdrawals for qualified expenses are tax-free. HSA funds can roll over year after year, providing flexibility. To contribute to an HSA, you must be part of a high deductible health plan (HDHP). Minimum annual deductibles and out-of-pocket expense limits have increased for 2024.
Excepted Benefit Health Reimbursement Arrangement (EBHRA)
If your employer offers an Excepted Benefit Health Reimbursement Arrangement (EBHRA), the maximum contribution amount for 2024 is $2,100, up from $1,950 in 2023. This arrangement allows tax-free reimbursement for “excepted” benefits like dental and vision coverage.
Always take into account that the impact of these adjustments depends on individual circumstances and financial capacity. Staying informed about changing contribution limits is a minimum step towards managing your retirement and health accounts effectively. While this article provides valuable insights, seeking advice from retirement and tax professionals is recommended for personalized guidance.
2024’s COLA Is Lower That the Last One
In 2023, despite a significant cooling of inflation, consumer prices continued to rise, leading to a 3.2 percent Cost of Living Adjustment (COLA) for Social Security beneficiaries. This resulted in an increase of the estimated average retirement benefit by $59 per month, raising it from $1,848 to $1,907, effective from January, as reported by the Social Security Administration (SSA).
While this COLA is notably lower than the 2023 increase of 8.7 percent, which was influenced by intense inflation in 2022 and marked the largest adjustment in over 40 years, the 2024 bump remains slightly above the historical average. Over the past few decades, the COLA has typically averaged around 2.5 percent annually.