Changes to the 2023 and 2024 retirement contribution limits 

While most of your end-of-year spending may be going towards cookies, gifts, and vacations, there are some options to invest before the new year if you choose. 

Maxing out your retirement means contributing the maximum allowable amount to your retirement savings accounts within a given tax year. Different retirement accounts, such as 401(k)s or IRAs, have annual contribution limits set by the IRS.  

These annual contribution limits can change year to year, but from 2019 through 2022, the limits for IRAs remained the same. 

In late 2022, the IRS announced that the limits would be increased for 2023, and this year, the limits were increased again for 2024. 

Here are the following contribution limits for traditional IRAs and Roth IRAs. These numbers reflect the total amount you can contribute across all traditional and Roth IRA accounts you own.

You can access your Roth or traditional IRA via your M1 account. 

Year	Under 50	50 and over
2022	$6,000	$7,000
2023	$6,500	$7,500
2024	$7,000	$8,000

The contribution limits for 401(k) plans were also increased this year and next.  

Here are the following contribution limits for 401(k) plans. 

Year	Pretax 401(k) employee contributions	Total 401(k) employee and employer contributions	401(k) catch-up contributions
2022	$20,500	$61,000	$6,500
2023	$22,500	$66,000	$7,500
2024	$23,000	$69,000	$7,500

Deciding which account

You should decide which account is the best for you. Regardless, if your company offers a 401(k), it can be advantageous to participate since many companies will match your contributions to up a percent. When deciding between a Roth or traditional IRA, consider the following: 

Roth IRAs and traditional IRAs offer different potential tax benefits. With a Roth IRA, contributions are made with after-tax income, meaning you don’t get an immediate tax benefit. However, qualified withdrawals, which you can make after the age of 59 ½, are entirely tax-free, including both the initial contributions and any investment earnings. Any distributions before the age of 59 ½ may have some associated penalties. 

On the other hand, traditional IRAs allow for tax-deductible contributions, providing an immediate reduction in taxable income for the year of contribution. However, taxes are levied on withdrawals during retirement, and any distributions before the age of 59 ½ may incur penalties. Additionally, mandatory distributions commence in the year after you turn 73, subjecting individuals to taxation at their ordinary income rate.  

Calculating your contributions

For 2023, you can calculate the total amount you have contributed so far on M1 under “funding history” and subtract that from the total allowable contribution amount. If you have the money and it fits with your financial plan, you can consider maxing out retirement accounts before the end of the year in one lump sum contribution. You could also continue making contributions for the current year’s annual limit until you file your tax return the following year if you haven’t reached the maximum by then. 

If you’ve maxed out your contributions for 2023, you can begin contributing toward 2024 starting January 1.

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DISCLOSURES:

M1 and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only. It is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.