If you're looking to max out your retirement savings, you'll be happy to hear that the contribution limits have been bumped up by $500 for most retirement savings plans in 2024, the Internal Revenue Service announced Wednesday.
Contribution maximums will increase from $22,500 to $23,000 for 401(k), 403(b) and most 457 plans, as well as the federal government's Thrift Savings Plan, the IRS says.
The contribution limit on individual retirement accounts will increase by $500 in 2024, from $6,500 to $7,000.
More people will be able to make contributions to Roth IRA accounts, too.
The amount you can contribute to a Roth IRA phases out based on your adjusted gross income: In 2024, that range will increase to between $146,000 and $161,000 for single individuals and heads of households, up from between $138,000 and $153,000 in 2023.
For married couples filing jointly, the range increases to between $230,000 and $240,000.
Qualifying income ranges have also increased for the retirement savings contributions credit and the amount of tax deductions you can claim for IRA contributions.
Picking the right retirement account for you
Before you can max out your retirement contributions, you need to pick a retirement savings plan, which all come with their own pros and cons. Here's a look at a few potential options.
Contributions to traditional IRAs and 401(k)s are made with pre-tax income, which lowers your overall taxable income for a given year. That also means you aren't taxed on contributions, or earnings, until you make a withdrawal.
One advantage of 401(k)s: they have much higher annual contribution limits than IRAs, although the investment choices tend to be more limited.
Roth IRAs, on the other hand, are taxed upfront, so any money invested grows tax-free over time. If you're in a lower tax bracket now than you anticipate being in during retirement, choosing a Roth can help reduce your overall tax burden. (Check out this list of the best Roth IRAs from CNBC Select.)
While there are other differences between the accounts to consider, they're generally all good long-term investment accounts since they offer tax advantages and the contributions will grow and compound over time.
However, if your 401(k) offers employer matching, you might want to start there. Employer matching is when your company matches a portion of your contributions, up to a certain limit — often 50% on the first 6% of your salary.
"Matching dollars are too good to pass up," says Justin Rucci, a certified financial planner in Newport Beach, California.
Employer-sponsored plans are "the easiest to set up and to automate, and they also have higher contribution limits than IRAs," he says. "IRAs and Roth IRAs are also potentially subject to income limits, which aren't as much of an issue with employer plans."
Whatever you pick, try to put as much of your income as possible into retirement savings: "I've yet to meet someone who wishes they saved less for retirement," says Rucci.
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