When the IRS announces the new amounts you can contribute each year to retirement plans, the number everyone focuses on is the max you can put into workplace 401(k) plans, which is $23,000 for 2024. But what if you want to save more than that, and still get preferential tax treatment? You do have some options.
Most people, though, do not even max out their base contributions nor contribute any catch-up contributions – just 15% put in $23,000 and only 16% contributed any catch-ups in 2022, according to the latest “How America Saves” report from Vanguard.
Whether this strategy works for you depends on your financial situation now and how you expect it to change in the future. A high-earner who is already in the 37% tax bracket and who has a lot saved might want to stick with pretax contributions. Meanwhile, a younger worker in a low tax bracket now might benefit from stashing away tax-free money down the road. headtopics.com
In-plan Roth conversions Another amount that is going up next year is the limitation for defined contributions, which is basically the outer boundary set by the IRS on how much can go into a workplace retirement plan in total. That means your employee contribution, plus the employer contribution, whatever that may be. That is going up to $69,000 for 2024, from $66,000 this year.
First, consider your other savings options. Sri Reddy, senior vice president of retirement and income solutions at Principal Financial Group, steers people first to make contributions into a health-savings account if they are eligible, and then to make sure they are making use of every other type of tax-advantaged account that they can. headtopics.com
“There’s a continuum here,” says Reddy. “First you contribute to your 401(k) and get the match. And if that’s all you can save, great. If you can save more, max out the HSA, then look and see if you have other pretax money elsewhere. And then, otherwise, max out the after-tax contributions.”