The IRS released 2024 contribution limits; here’s why you should care

These contribution limits are subject to change every year, and on November 1, the 2024 limits were announced. Here is what you need to know about the new contribution limits along with some takeaways for those workers aged 50 and above who need to increase their retirement savings, which includes pretty much everyone.

Here are the 2024 regular limits:

$23,000 for 401(k), 403(b) and most 457 Plans. This is a significant increase from just two years ago when the 2022 limit was $19,500.

$7,000 for Traditional and Roth IRAs, which is up from $6,000 just two years ago.

Here are the 2024 limits on "catch-up" contributions only available to those 50 and older:

$7,500 for 401(k), 403(b) and most 457 Plans.

$1,000 for IRAs

Why you should pay attention to these limits. Most Americans nearing retirement say they don't have enough retirement savings. In a recent YouGov survey for Bankrate, 6 in 10 Baby Boomers and 7 in 10 Gen-Xers said they don't have enough saved for retirement to be able to stop working when they get to retirement age. But only 15 percent of U.S. workers with an employer-sponsored 401(k) plan are making the maximum allowable contribution and only 16 percent of those aged 50 and above are taking advantage of the make-up contribution limits.

If you want the ability to retire while maintaining your current lifestyle but know you've got a way to go with your savings, there are some key takeaways from the annual release of this contribution limit information, including:

1. Know where you are financially for retirement. If you have retirement savings but you don't have a retirement plan, get with a financial advisor who can prepare one for you. Without a plan, you simply can't know if you're on track financially.

2. If your retirement plan indicates the need to accelerate your savings to reach your financial goals, then start making plans to max out your regular contributions and take advantage of the catch-up contributions as quickly as possible.

3. Increasing your contribution levels will likely mean you need to cut back on current spending, so work with your financial advisor to set a realistic budget that allows you to increase your savings rate. It's better to make cuts to your discretionary spending now than it is to make major lifestyle changes when you retire.

4. Make sure you are taking full advantage of any employer matching program for retirement savings. If you know that putting an additional $200 per month of your own money in your retirement savings account would result in $200 in matching contributions from your employer, it can make any spending cuts easier. This starts with getting a full understanding of what is offered by your employer.

Navigating and understanding the IRS contribution limits for retirement accounts requires some diligence and strategic planning. By staying informed and taking advantage of tax-advantaged opportunities, you can optimize your retirement savings. And we recommend using the annual release of new limits as a reminder to review your progress and your retirement plan. Contact a tax professional for more information on tax advantages. Arvest and its associates do not provide tax or legal advice.

Brooks Davis is Arvest community bank president for Conway and Morrilton.