Do not save what is left after spending, but spend what is left after saving.
Warren Buffet
Since the 401k plan was introduced in 1978 it has become a primary savings vehicle for two generations of retirement investors. A career worth of steadily saving into your employer 401k plan can lead to significant wealth. Fidelity reported that there are a record number of “401k millionaires” in the retirement plans they administer. Between Fidelity 401k and IRA accounts there are 727,104 clients with a balance of at least $1 million.
The IRS recently announced an increase in 401k and other retirement plan contribution limits for the 2024 tax year. These limits are indexed to inflation. While last year saw a record increase of $2,000 this year will see a more modest increase of $500 from $22,500 to $23,000. For savers 50 and over there is an additional catch-up contribution of $7,500 (unchanged from last year). Your employer can also add funds to your plan for a combined total of $69,000 in 2024.
This increase also applies to most other retirement plans such as 403(b), 457 plans, and the Thrift Savings Plan for federal employees.
Individual IRA and Roth IRA contributions also increased by $500.
| Year | 401k Max Employee Contribution | IRA Max Contribution |
| 2024 | $23,000 | $7,000 |
| 2023 | $22,500 | $6,500 |
| 2021 | $20,500 | $6,000 |
| 2020 | $19,500 | $6,000 |
| 2019 | $19,000 | $6,000 |
| 2018 | $18,500 | $5,500 |
| 2017 | $18,000 | $5,500 |
| 2016 | $18,000 | $5,500 |
| 2015 | $18,000 | $5,500 |
| 2014 | $17,500 | $5,500 |
| 2013 | $17,500 | $5,500 |
| 2012 | $17,000 | $5,000 |
| 2011 | $16,500 | $5,000 |
| 2010 | $16,500 | $5,000 |
| 2009 | $16,500 | $5,000 |
| 2008 | $15,500 | $5,000 |
| 2007 | $15,500 | $4,000 |
| 2006 | $15,000 | $4,000 |
| 2005 | $14,000 | $4,000 |
While $500 may not result in significant tax savings, the compound effect of saving an extra $500 a year could have a meaningful impact on your retirement. If a 35 year old began saving an extra $500 a year until he or she turned 65 that would be an extra $15,000 in savings. Assuming a growth rate of 8% annually he or she would have an extra $56,641 in the retirement account.
Thanks to the magic of compounding investing relatively small amounts of your paycheck over a career can turn into significant wealth in retirement as you get rich slowly.
Investing $583.33 monthly (approximately the 2024 $7,000 annual limit) into a Roth IRA from age 25 to 65 would grow to $1,161,702 assuming a 6% rate of return. If you earned a 9% annual rate of return the account would be $2,730,770! And with a Roth IRA these gains may be withdrawn tax free in retirement significantly enhancing your spendable wealth.
Further Reading
- 401(k) Limit Increases (IRS.gov)
- There Are More 401k Millionaires Than Ever (Boston Herald)
