The Internal Revenue Service is increasing the amount of money people can contribute to their 401(k) plan before being taxed.
The new contribution limit for 2024 is $23,000, up from $22,500 in 2023.
The increase is not just limited to 401(k) plans. The IRS is also increasing the annual pretax contribution limits for IRAs. Starting next year, people can contribute up to $7,000 to their account before taxes. That's an increase of $500 from 2023. People 50 years and older can deposit an extra $1,000 as part of the contribution catch-up plan.
"Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions," the IRS said in a statement. "If during the year either the taxpayer or the taxpayer's spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income."
Americans are increasingly trying to save for retirement. According to the Investment Company Institute, Americans had more than $7 trillion in 401(k)s and $13 trillion in IRAs in the second quarter of 2023.
Vanguard, which holds investments accounts for millions of Americans, reported that the average 401(k) balance in 2022 was about $112,000.
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