401(k) vs. IRA Contribution Limits for 2024

401(k) Contribution Limits for 2024

In 2024, you can contribute up to $23,000 to an employer-based retirement plan, including 401(k), 403(b) and most 457 plans. Here are the contribution limits at a glance:

• 2024 contribution limit (49 and under): $23,000
• 2024 catch-up contribution (50 and older): $7,500
• 2024 total contribution limit (50 and older): $30,500

401(k) Contribution Limits With Matching Funds

Matching funds from your employer don’t count toward your basic 401(k) contribution limit. However, the IRS does limit the total amount you can contribute including matching funds:

• 2024 total contributions (49 and under): $69,000
• 2024 total contributions (50 and older): $76,500

In any case, your 401(k) contribution also can’t be more than 100% of your compensation.

IRA Contribution Limits for 2024

In 2024, you can contribute up to $7,000 to a traditional or Roth IRA with an additional catch-up contribution of $1,000 if you’re age 50 or older. Here are the 2024 IRA contribution limits spelled out:

• 2024 IRA contribution limit (49 and under): $7,000
• 2024 catch-up contribution (50 and older): $1,000
• 2024 total contribution limit (50 and older): $8,000

Your IRA contribution should be made using earned income; to that end, your contribution can’t exceed your compensation for the year. For example, if you earn $3,500 in 2024, your maximum IRA contribution is $3,500. Married couples filing jointly can each make the maximum contribution to an IRA as long as their combined income exceeds the amount they’re contributing, even if one spouse doesn’t meet the income requirement.

You can contribute to an IRA even if you also contribute to a 401(k) at work, but see Roth IRA income limitations below and IRA deduction phaseout information for 2024. You can also split your contribution between a traditional and a Roth IRA, as long as your combined total doesn’t exceed $7,000 ($8,000 if you’re age 50 or older).

SIMPLE IRA and SEP-IRA Contribution Limits

SEP-IRA and SIMPLE IRA plans are for businesses and self-employed people. Both have higher contribution limits than regular IRAs.

• SIMPLE IRAs have a 2024 contribution limit of $16,000 with a $3,500 catch-up contribution for people age 50 and older.
• SEP-IRA contributions are limited to $69,000, or no more than 25% of income, whichever is less. An additional $7,500 catch-up contribution brings the total contribution limit to $76,500 for people age 50 and older.

Roth IRA Income Limits for 2024

To be eligible to make a Roth IRA contribution, you have to fall within IRS income requirements. Check your eligibility by finding your tax filing status and adjusted gross income on the chart below.

Source: IRS

If your income puts you into a phase-out range—where you’re only eligible to make a partial contribution—you can estimate your contribution amount using a worksheet in IRS Publication 590-A, Contributions to Individual Retirement Accounts (IRAs).

What to Do if You Contribute Too Much to an IRA or 401(k)

Contributing too much money to your IRA or 401(k) plan can trigger additional taxes. Any excess contributions you make, plus any interest or gains they accumulate, are taxed at 6% per year for each year the money remains in your retirement account. The tax you owe won’t exceed 6% of the combined value of your IRA accounts at the end of the year.

You can avoid paying the 6% tax by withdrawing your excess contributions, along with any earnings they’ve generated, before the due date for individual tax returns. For contributions made in 2023, that deadline is April 15, 2024. Be aware: To receive these funds by the April 15 deadline, you should ideally request them a month or more in advance.

How to Withdraw Excess Funds

Ask your 401(k) plan administrator or IRA provider for a corrective distribution that includes the excess money you contributed and the interest or appreciation you earned on it. You should receive Form 1099-R, which shows how much income you generated when you took out your excess contribution so you can add it to your taxable income.

How Are Retirement Plan Contribution Limits Determined?

The IRS reviews more than 60 tax provisions each year for inflation, including the value of various tax credits, standard deductions and retirement plan contribution limits. When the cost of living increases substantially, retirement contribution limits are likely to increase. In years when the cost of living remains relatively stable, fewer (or smaller) annual adjustments are likely to happen.

Even in a year, like 2024, when cost of living adjustments are robust, some items don’t change. For example, IRA catch-up contributions are set to adjust annually, but they remain consistent from 2023 to 2024. The IRS usually announces adjustments for each tax year late in the prior year, so taxpayers have the information they need for tax planning.

The Bottom Line

Maximizing your contributions to tax-advantaged 401(k) plans and IRA accounts can get you to your retirement savings goals faster. Even more to the point, annual IRS adjustments are meant to help retirement savers keep pace with inflation. Following IRS guidelines can help ensure you don’t under- or over-fund your accounts, so you get maximum tax benefits without triggering additional taxes.