IRS increases 401(k) contribution limits for retirement savers in 2024.

In a significant move aimed at enhancing retirement savings, the Internal Revenue Service (IRS) announced on Thursday that the contribution limits for 401(k), 403(b), and most 457 plans will increase in 2026. According to the IRS, individuals will be permitted to contribute up to ,500, a notable rise from the current limit of ,500.

For workers aged 50 and over, who have the option of making additional catch-up contributions, the maximum allowable amount will be elevated to ,000 next year, up from the previous limit of ,500. This change means that individuals in this age bracket could contribute a total of ,500 annually to their retirement plans beginning in 2026. Furthermore, for workers aged between 60 and 63, catch-up contributions will maintain the limit at ,250.

In addition to 401(k) plans, the IRS has also adjusted the annual contribution limits for individual retirement accounts (IRAs). For 2026, individuals will be able to contribute ,500 to their IRAs, increasing from the current ,000. The catch-up contribution limit for IRAs will see a 0 increase, raising it to ,100 in 2026.

These adjustments reflect an ongoing effort by the IRS to facilitate increased retirement savings, particularly benefiting older workers who may have started saving later in their careers. The ability to boost contributions, even marginally, can lead to significant gains over extended periods, particularly for those who remain in the workforce and contribute consistently.

Additionally, the IRS has raised the income thresholds that determine eligibility for deductible contributions to traditional and Roth IRAs, as well as for claiming the saver’s credit, also known as the retirement savings contributions credit. Taxpayers may deduct contributions to a traditional IRA under specific conditions, although these deductions may be phased out based on income and filing status if the taxpayer or their spouse is covered by a retirement plan at work.

According to Fidelity Investments, the average 401(k) balance was 7,800 in the second quarter of this year, reflecting an 8% increase from the previous year and a substantial 32% jump from the same quarter in 2020. This increase is attributed to both record-high savings rates and robust stock market performance.

Further details regarding these changes and others are available on the IRS website, marking a notable change in the landscape of retirement planning for American workers in the coming years.