It’s not the time to open champagne.
Here are the tax credits you can contribute to your 401(k) plan in 2024: Likely to go up by just $500That’s 2.2%, according to projections from pension consulting firm Mercer.
The company expects the donation limit to rise from $22,500 to $23,000 next year, and the same is true for its 403(b) and 457 plans, the equivalent of 401(k)s for nonprofits and the public sector. It has said.
And Mercer said there will be no increase to the $7,500 additional contribution allowed for those over the age of 50. This means that for workers in their 50s and 60s, the total tax-deferred contribution limit will increase from $30,000 to $30,500. 1.7%.
The estimate comes at a time when the official inflation rate is 3.2% and the Federal Reserve is struggling to bring inflation down to its target rate of 2%.
An increase in the catch-up limit is planned from 2025, but for those aged 60 to 63. Their limit goes from $7,500 to $10,000.
Mercer’s projections of how much the contribution threshold will increase are based on the Internal Revenue Service’s own methodology, including cost of living adjustments and rounding methods, and the associated inflation rate, consumer price index (CPI) for urban consumers ( VPI). -U.
But these are just estimates and we won’t know the actual numbers until October. To calculate the COLA, the IRS compares his CPI data for July, August and September with the same figures from a year ago. So is social security.
Putting the potential contribution limit increase next year in context, Vanguard reports: Median 401(k) balance Our 4.9 million customers collectively contribute less than $27,500. This equates to just over a year of his maximum contribution for employees under the age of 50.
The median age of plan participants in the study was 43, according to Vanguard.
I wish these workers had pensions they could rely on in their old age. However, only 15% of private sector workers are enrolled in traditional pension plans known as defined benefit plans. However, among civil servants That figure is 86%.
We are lucky that Social Security finances are this great.
Mercer’s predictions about next year’s 401(k) limits come just as the IRS released some exciting news about the so-called high-income earners, those who earn about $150,000 or more a year. They can continue to deduct additional contributions from their taxable income for the next two years, officials ruled.
Related: The IRS says high-income earners can wait until 2026 to put additional contributions into the Roth. Ready to get started?
A provision in the Safe Retirement Funds Act 2.0 passed by Congress last year states that high-income earners must make additional contributions in after-tax amounts. However, in response to complaints from plan providers and others, the IRS has now announced that the rule will go into effect in 2026 instead of the previously scheduled 2024.
In other words, the latest 401(k) news is much more beneficial to high-income earners than others.
Also read: I’m retiring soon and want to rob my 401(k) to buy a house. “Am I crazy?”
