What Are the 401(k) Contribution Limits for 2024?

Imagine having access to the same investment account that millionaires use to build their wealth. Wouldn't you seize that opportunity? Well, the truth is, you already have that chance! Surprisingly, millionaires don’t gamble on flashy investment trends. Instead, they prioritize investing in their straightforward and dependable 401(k) plans at work.

In fact, according to The National Study of Millionaires, 8 out of 10 millionaires invested in their company’s 401(k) plan. They consistently contributed to their accounts month after month, year after year, until they eventually found themselves with a net worth in the seven figures. If they can achieve this, so can you!

Your 401(k) is an easy and effective way to save thousands of dollars each year for retirement. If you’re among the millions of Americans with access to a 401(k), don’t overlook its value!

So, how much can you contribute to your 401(k) in 2024? Let’s break it down.

In 2024, you can invest up to $23,000 in your 401(k) plan. If you’re 50 years or older, you can make an additional catch-up contribution of $7,500, bringing your total potential contribution to $30,500.

These limits also apply to individuals with 403(b)s, most 457 plans, and the government’s Thrift Savings Plan (TSP). Typically, all contributions to a 401(k) are due by the end of the calendar year.

These contribution limits are applicable to both traditional 401(k)s and Roth 401(k)s. While both are employer-sponsored retirement savings accounts, they are taxed differently. 

In a traditional 401(k), contributions are made before taxes are deducted from your paycheck. This means you receive a tax break now, but you will pay taxes on your withdrawals in retirement.

Conversely, with a Roth 401(k), your contributions are made with after-tax dollars, allowing your money to grow tax-free. Withdrawals in retirement are also tax-free. If your company offers a Roth 401(k) option, take full advantage of it—there’s truly no better way to benefit from tax-free growth!

How Much Should You Save for Retirement?

To begin, aim to invest 15% of your gross income into retirement savings accounts like a Roth 401(k) and a Roth IRA. Distribute your investments evenly across four types of mutual funds: growth and income, growth, aggressive growth, and international, within those retirement accounts.

We understand that you’re excited to start saving for your retirement, but if you are still working to get out of debt or need to establish a solid emergency fund, now is not the right time to focus on retirement savings. Your income serves as your primary wealth-building tool, and you can't leverage its full potential if it’s being consumed by credit card or student loan payments.

Let’s say you are debt-free, have a fully funded emergency fund, and earn an annual salary of $75,000. In this case, your goal would be to save $11,250 each year for retirement. Where should you start? Let’s break it down step-by-step.

1. Take Advantage of the 401(k) Match.  

Does your employer offer a 401(k) with an employer match? This is the ideal starting point for retirement savings! Your first step should be to invest up to the match in your 401(k).

For instance, if you earn $75,000 per year and your employer matches 5% of your contributions, you should invest the first 5% of your salary ($3,750) into your 401(k) to secure that match—essentially free money! Remember, do not count your employer’s match as part of your 15%. Think of the match as the icing on the cake, not the cake itself.

2. Consider the Remaining 10%.  

If you have a Roth 401(k) and are satisfied with your investment options, you can invest your entire 15% there. If your employer only offers a traditional 401(k), it's time to consider opening a Roth IRA.

3. Contribute to a Roth IRA.  

The Roth IRA complements the 401(k)—they work well together! The advantage of a Roth IRA (individual retirement account) is that it allows for tax-free growth and tax-free withdrawals in retirement. Who doesn’t love the sound of tax-free?

In 2024, you can contribute up to $7,000 to a Roth IRA (plus an additional $1,000 catch-up contribution if you’re 50 or older). Returning to our previous example, if you max out your Roth IRA by investing $7,000, your total retirement savings for the year would reach $10,750—just $500 short of your goal.

4. Invest the Remaining $500 in Your 401(k).  

If you’ve contributed up to the match in your 401(k), maxed out your Roth IRA, and still haven't reached the 15% goal, don’t worry! You can invest the remaining $500 in your 401(k). Congratulations, you’ve hit your 15% target!

5. Work With a Financial Advisor.  

If you have questions about your 401(k) investment options or need help opening a Roth IRA, working with a financial advisor can be extremely beneficial. They can provide guidance on how to invest for retirement and build wealth.

Don’t have an advisor yet? We can assist you with that!

Ready to get started? Reach out to Clarion Advisors today for a FREE consultation!