How To Max Out Your 401k In 2024: New Rules Make It Easier

Among the countless headlines last year, little attention was paid to retirement saving. Yet there was some significant news that will make a positive difference going forward. Congress and the IRS greenlighted a number of new rules that will make it easier to save more for retirement. If you’re just eyeing your retirement savings goals for this year, you can start with some good news.

For 2024, the limit for 401(k) plan contributions is $23,000, up from $22,500 last year, according to the IRS. That limit also applies to 457, 403(b) and the federal government’s Thrift Savings Plan.

Better yet, every retirement savings plan got a bump up in contribution limits this year:

• The annual contributions to an IRA increased to $7,000, up from $6,500.
• The IRA catch‑up contribution limit for individuals aged 50 and over was amended under the SECURE 2.0 Act of 2022 (SECURE 2.0) to include an annual cost‑of‑living adjustment, but remains $1,000 for 2024.
• The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), and most 457 plans, as well as the federal government's Thrift Savings Plan remains $7,500 for 2024. That means participants in these plans who are 50 and older can contribute up to $30,500 total, starting in 2024.

There are also a number of rules changes — 90 in all — that may impact you. My suggestion is that you talk with your human relations person to see what may apply. Here’s a quick summary of the major changes, according to plansponsor.com:

* The IRS will allow “one penalty-free withdrawal of up to $1,000 per year for unforeseeable or immediate financial needs relating to personal or family emergency expenses.” But don’t treat your 401(k) or other retirement plans as an emergency savings account. Set one up separately.

* Speaking of emergency savings plans, in 2024 employers can “offer short-term emergency savings accounts (“ESAs”) as part of a defined contribution plan. ESAs must be funded post-tax with Roth contributions, and participants may be automatically enrolled at a rate of up to 3% of compensation.”

* Did you set up a 529 plan for college savings? It’s usually a great vehicle if you have children — or are eyeing college/graduate school for yourself or your partner. In 2024, “certain assets in a 529 qualified tuition program account maintained for at least 15 years for a designated beneficiary can be directly rolled over on a tax-free basis to a Roth IRA maintained for the benefit of the beneficiary.”

* Also new this year, the IRS will allow “certain penalty-free early withdrawals in the case of domestic abuse in an amount not to exceed the lesser of $10,000 (indexed) or 50% of the value of the employee’s vested account under the plan.”

Regardless of the year, your goal should be to save as much as you can. Always take your employer’s match — if offered. And if your employer doesn’t offer a plan, set up your own SEP or SIMPLE plan, particularly if you are self-employed. That’s good advice for any year before retirement.

By John F. Wasik, Contributor