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6 Ways to Maximize Your 401(k) or IRA Plan Contributions

Individual Taxes Retirement
A middle-aged couple discuss how to maximize their retirement plan contributions this tax year.

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Updated for tax years 2023 and 2024.

One of the best money moves you can make this year is to boost your retirement nest egg by maximizing your contributions to your deductible or nondeductible retirement plan. Whether you’ve contributed all year or have yet to start, here are a few financial planning tips to get the most from tax-advantaged retirement plans.

Ways to maximize your retirement savings

1. Know your contribution limits.

Retirement contributions can lower your tax bill, but there is a limit to how much you can contribute each year. Try to contribute as much as your budget and the law allows so you get the most benefit, but don’t go over the annual contribution limit. If you contribute too much to your retirement account, you may have to pay double the taxes on any excess contributions.

Individual retirement accounts

If you have an individual retirement account (IRA), the contribution limit for 2024 is $7,000 (up from $6,500 in 2023). Taxpayers who are age 50 and over are allowed to make catch-up contributions, making their limit $8,000 per year in 2024. If you are married and filing jointly, each of you can contribute up to those amounts in your IRAs.

For Roth IRAs, which use after-tax dollars, the amount you can contribute in 2024 starts to phase out when your modified adjusted gross income (MAGI) reaches $146,000 for singles and heads of household or $230,000 for those married filing jointly or qualifying widow/widower. Since these accounts use after-tax contributions, your withdrawals in retirement will be tax-free.

If you have a traditional IRA, which uses pre-tax money, your money won’t be taxed until you start taking distributions. However, you can deduct your contributions on your tax return. You must fall within the income limits to do so — unless neither you nor your spouse (if married) is covered by a work retirement plan, in which case your full contribution is automatically deductible.

To fully deduct your tax-deferred contributions in 2024, your income must be less than:

  • $77,000 for single taxpayers covered by a workplace retirement plan. The deduction fully phases out at $87,000.
  • $123,000 for married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan. The deduction fully phases out at $143,000. These limits also apply to qualified widow(er)s.
  • $230,000 for those NOT covered by a workplace retirement plan (but who are married to someone who is covered). The deduction fully phases out at $240,000.

If you contribute more than the limit to your IRA account, all excess contributions are taxed at 6% per year as long as the extra amounts remain in the account. To avoid the tax, consider withdrawing the amount over the limit and taking out any income earned on the excess contribution.

401(k) plans

The maximum contribution to 401(k), 403(b), and most 457 plans for 2024 is $23,000 (up from $22,500 in 2023). Those over 50 can contribute up to $30,500. Keep in mind that if you’re in a Deferred Compensation Plan, called a 457(b), you’re subject to a limit that includes both your contributions and those made by your employer through any employer match benefits.

2. Know your deadlines.

You have until the due date of your tax return to contribute to that year’s IRA. For example, if you want to contribute to your IRA for 2024, you have until April 15, 2025, to do so, as that is when your 2024 tax return will be due.

However, contributions to a traditional or Roth 401(k) or similar plan are different. All pre-tax contributions are deposited directly from your paycheck throughout the year. Therefore, you can’t normally add outside money to boost your tax break. However, consider talking with your employer about your deferral rate — you may be allowed to increase the amount of money contributed to your 401(k) each paycheck.

Some employers also allow employees to contribute year-end bonus money to their 401(k). Just make sure to let them know before the money is paid to you! Talk with your employer soon if you wish to add any bonus money to your retirement account.

3. Make your contributions automatic.

The beauty of a 401(k) deduction is that it’s automatic. It’s hard to miss money deducted before you receive your paycheck, right? If you ever want to increase your contribution, simply contact your employer. And don’t forget to max out your employer matching contributions, if applicable — you don’t want to miss out on free money!

With an IRA, it’s easier to procrastinate. However, you can make your IRA contributions automatic by having a portion of each paycheck deposited into a separate account or by setting up an automatic transfer from checking to a special savings account every month.

4. Move money from other accounts.

Money for IRA contributions doesn’t have to come from your checking account and this month’s budget. The same benefits are available if you transfer money from a brokerage account or savings account.

If you’re worried about squeezing your monthly budget, consider moving money from an alternate account to your checking instead. You can only contribute cash to a retirement plan, however. Other assets, like stocks, are not considered regular contributions.

Just remember to keep all your financial objectives in mind before moving money to a retirement account.

5. Make periodic payments.

When you’re using an employer’s plan, you’re already making monthly periodic payments out of your paycheck.

If you have an IRA, consider sending small contributions to your brokerage or other institution.  Quarterly or even monthly payments are a good way to slowly add money throughout the year. This method can be a lot less painful than coming up with the money all at once.

6. Use a financial windfall to your advantage.

If you receive a financial windfall, such as winnings from a contest, one option is to add a portion of it to your IRA. First, estimate the tax on the amount you received. Then place that amount in a special tax account or immediately send it to the IRS. This ensures you’re covered come tax time. This works for bonuses, federal or state tax refunds, proceeds from selling assets, and so on.

This article is for informational purposes only and not legal or financial advice.
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