Inflation for everyday goods continues to affect households. While the Consumer Price Index subsided from its painfully high levels a year ago, it still increased by nearly 4% year over year.1
In stride, the Internal Revenue Service released its 2024 cost-of-living adjustments (COLA). The Social Security Administration also released their 2024 COLA numbers, showing an increase in payments.
Here is a snapshot of the latest figures.
Social Security COLA
The 2024 COLA for Social Security will rise 3.2% for most recipients beginning in January 2024.2 This is still a relatively substantial increase compared to most adjustments from the last decade, but pales in comparison to the 8.7% increase in 2023 and 5.9% increase in 2022.2
While some of these increases sound impressive, in the end, the average monthly benefit for all retired workers will increase by only $59 per month to $1,907 ($22,884 per year) in 2024. Chances are, most retirees would agree that their actual cost of living increases far exceeded that adjustment.3
The maximum Social Security taxable wage increased from $160,200 in 2023 to $168,600 in 2024. One credit is earned toward benefit eligibility, up to four in a calendar year, with each $1,730 in earnings per credit up to four in a calendar year.3
Those claiming benefits before "full" retirement age while still working will see their earnings test limit increase to $22,320, after which one dollar in benefits will be withheld for every two in earnings. Similarly, the earnings test limit will increase to $59,520 for people who reach “full” retirement age in 2024,3 above which one dollar of benefits will be withheld for every three dollars earned over the limit.4
Increased 2024 retirement contribution limits
Contribution limits for employee participants in 401(k), 403(b), most 457 plans and the federal government's Thrift Savings Plan increase by $500 to $23,000 in 2024. Meanwhile, catch-up contributions for employee participants aged 50 and over remain at $7,500, allowing them to contribute up to a total of $30,500 to their employer-sponsored plan beginning in 2024.4
Traditional and Roth IRA contribution limits increase to $7,000 in 2024, and additional catch-up contribution limits for those age 50 and over remain at $1,000.4
Traditional IRA income limits
Traditional IRA contributions may be tax deductible for those who meet certain criteria. Contributors not covered by a retirement plan at work, and who do not have a spouse with an employer-sponsored plan, may be able to deduct in full up to their contribution limit.4 The following phase-out limits apply to households covered by a workplace retirement plan.
Traditional IRA single filers
For 2024, Single tax filers covered by a workplace retirement plan with Modified Adjusted Gross Income (MAGI) are subject to a deductibility phase-out range between $77,000 and $87,000, a significant jump from the previous range between $73,000 and $83,000.4
Traditional IRA married filing jointly
Married couples who file jointly and are covered by workplace retirement plans also saw their deductibility phase-out range increase for incomes between $123,000 and $143,000. Combined income below $123,000 makes them fully deductible. These limits are up from the previous 2023 phase-out range between $116,000 and $136,000.4
If one spouse is covered by a workplace retirement plan, the non-covered spouse benefits from a higher deductibility phaseout range between $230,000 and $240,000 MAGI, up from $218,000 to $228,000 in 2023.4
Married individuals who have a workplace retirement plan and file separate returns do not benefit from a COLA and the phase-out range remains between $0 and $10,000.4
Roth IRA income limits
Income limits apply to someone’s ability to make contributions to a Roth IRA, and also saw an increase in 2024:
Roth IRA single filers
The contribution phase-out range for single filers and heads of household is between $146,000 and $161,000 for those contributing to a Roth IRA, up from between $138,000 and $153,000 in 2023. Incomes within that range have prorated contribution limits.4
Roth IRA married filing jointly
The phase-out range for Roth IRA contributions of Married Filing Jointly investors increased to between $230,000 and $240,000, up from between $218,000 and $228,000.4
COLA limits for higher earners
The limits mentioned here might make some higher earners feel left out. Small business owners, however, often have numerous employer plans with much higher contribution limits available to them.
A Simplified Employee Pension (SEP) IRA permits an annual percentage of income contribution up to $69,000, associated with maximum SEP-covered compensation up to $345,000 in 2024, a $15,000 increase from 2023. An eligible, highly compensated employee may be provided significant contributions over the years to create a sizable SEP IRA balance.5
Savvy investors can, in a sense, create their own stream of retirement income. by directing funds into products such as annuities with all the risk control and income guarantees their chosen annuity provides.
Just when you think you may have a grasp on the latest tax implications, investment contribution limits or eligibility parameters, things change. That’s why it’s important for your clients to consult a tax professional. During your client meetings, however, you can shed some light on how COLA 2024 limits may impact their retirement strategy using some of the information we’ve provided here.
Written by: Marshall Heitzman, CFP®, ChFC, FLMI, CPCU, BFA™
Marshall is TruStage's Advanced Planning Expert and has more than 25 years of experience in the insurance and financial services industry. He consults Financial Professionals on advanced retirement planning concepts for retirement and wealth management clients.
