Increased Contribution Limits for IRAs and 401(k)s

Investment accounts like Individual Retirement Accounts (IRAs) and 401(k)s provide an exceptional opportunity for investors to save and build wealth. These tax-advantaged investment vehicles offer both traditional and Roth options, which enable individuals to choose whether to take the bulk of the tax benefit now or later. This decision depends on the time horizon, current and future income levels, and marginal tax rates, among other factors.

Both 401(k)s and IRA's are important to understand within the context of a comprehensive financial strategy. 401(k)s are employer-sponsored plans offered by a company for the benefit of its employees, with a higher contribution limit than an IRA and often with matching contributions offered by the employer. IRAs are opened by individuals, often with the assistance of a financial advisor, and typically have more investment options than 401(k)s. These two types of tax-advantaged investment accounts are not mutually exclusive; rather, an individual can invest up to the maximum allowable contribution into both accounts in the same year.

The IRS has announced that contribution limits will increase for 2024 to account for cost-of-living adjustments. The maximum annual amount an individual can contribute to their 401(k) will rise from $22,500 to $23,000, and for IRAs it will increase from $6,500 up to $7,000. For those over 50 years of age, the catch-up contribution allows an additional amount of $1,000 for each account.

The increased limits give investors the ability to keep pace with inflation in their tax-sheltered investment accounts, and individuals should consider taking full advantage to the extent possible based on their financial objectives, risk tolerance, and time horizon.

- Tony Winkels is Managing Partner and Wealth Advisor at Fortis Wealth Management