2024 Cost-of-Living Adjustment (COLA) fast facts
November 08, 2023
As we embark on another new year, many have been curious about the cost of living adjustments (COLA) they’ll see for 2024. The Internal Revenue Service (IRS) has made the updates available, and these adjustments have the marks of the current inflation crisis all over it.
Let’s get right into the latest COLA and what potential impacts they may have for your clients and plan participants.
Social Security COLA
The 2024 COLA for Social Security rose 3.2% for most recipients starting January 2024, with a maximum Social Security taxable wage of $168,600.1
The earnings test limit remains at $22,320 per year for anyone eligible who’s claiming benefits before their “full” retirement age while still working, with $1 of benefits deducted for every $2 earned over $22,320.2 Along those lines, the earnings test limit for people who reach their “full” retirement age in 2024 remains at $59,520, with $1 of benefits withheld for every $3 earned over that limit.2
Medicare also sees certain cost changes going into effect in 2024 that you should share with your clients or plan participants.
For Medicare Part A, the premium, deductible and facility stay costs will increase slightly to $1,632, which is a $32 increase over 2023.3 Similarly, coinsurance for days 61 through 90 of hospitalization rose to $408 per day in a benefit period (vs. $400 in 2023) and $816 per day for lifetime reserve days (vs. $800 in 2023).3 Beneficiaries in skilled nursing facilities will see a slight increase in daily co-insurance for days 21 through 100 of extended care services, paying $204 in 2024 (vs. $200 in 2023).3
For Medicare Part B, enrollees will pay a standard monthly premium of $174.70 in 2024, an increase of $9.80 from $164.90 in 2023.3 The annual deductible for all Medicare Part B beneficiaries will be $240 in 2024, which is up $14 from the 2023 annual deductible of $226.3
2024 retirement contribution limits
The new year also sees some retirement investment contribution limit increases, which could help set clients up for better success in the future.
Contribution limits for employee participants in 401(k), 403(b), most 457 plans and the federal government's Thrift Savings Plan increased to $23,000, up from $22,500.4 Catch-up contributions for employee participants aged 50 and over remained at $7,500, which means that those 50 and older can contribute up to a total of $30,500 to their employer-sponsored plan beginning in 2024.4
IRA catch-up contribution limit for those age 50 and over was amended under the SECURE 2.0 Act of 2022 (SECURE 2.0 Act) to include an annual cost-of-living adjustment, but the limit remains at $1,000 for 2024.4 Another SECURE 2.0 Act change to catch-up contributions affect employees making more than $145,000 in wages. Although retirement plans have a two-year window to implement this change— or to remove catch-ups completely — these earners will have to make any catch-up contributions post-tax as a Roth designation.5
Traditional IRA income limits
Traditional IRA contributions may be deductible from income taxes for those who meet certain criteria. Contributors who are not covered by a retirement plan at work, and do not have a spouse with an employer-sponsored plan, may be able to deduct in full up to their contribution limit.
The following phase-out limits apply to those households covered by a workplace retirement plan:
- Traditional IRA single filers: Those covered by a workplace retirement plan with Modified Adjusted Gross Income (MAGI) can expect a deductibility phase-out range between $77,000 and $87,0004
- Traditional IRA married/joint filing: Couples covered by workplace retirement plans will have a phase-out range for incomes between $123,000 and $143,0004
- If one spouse is covered by a workplace retirement plan, the non-covered spouse receives a higher deductibility phase-out range between $230,000 and $240,0004
- 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 $10,0004
Roth IRA income limits
Anyone who is contributing to a Roth IRA is subject to income limits, and for 2024, those have been increased as follows:
- Roth IRA single filers: Single filers and heads of household will now have a contribution phase-out range of $146,000 to $161,000
- Roth IRA married/joint filing: The phase-out range for joint/married filers has seen an increase in range — between $230,000 to $240,0004
- Roth IRA married/separate filing: The phase-out range remains between $0 and $10,0004
Saver's Credit income limits
The Retirement Savings Contributions Credit (popularly known as the Saver's Credit) available to low- and moderate-income workers is also seeing income limit increases for 2024:
- Married couples filing jointly can earn up to $76,500 (up from $73,000)4
- Heads of household can earn up to $57,375 (up from $54,750)4
- Singles and married individuals filing separately can earn up to $38,250 (up from $36,500)4
What this means for advisors and plan sponsors
This is essentially a new set of ranges and guidelines for those who receive Social Security payments and contribute to retirement plans. These changes are not blind to how tough the financial situation has been over the last few years for many Americans, and it is poised to help retirees feel more comfortable in their finances.
Get the word out to all those you guide on their journey toward (or through) retirement. The contribution limit boosts in particular may inform some of the choices plan participants make regarding how much of their current paycheck they’re willing to part with in the name of a stable financial future.
If you want to stay in-the-know about the latest goings on in the financial industry, from trends to regulations and everything in between, we encourage you to bookmark our Insights page and check back frequently.
1SSA.gov. Cost-of-Living Adjustment (COLA) Information | SSA, Accessed November 2, 2023
2SSA.gov. Social Security Fact Sheet: 2024 Social Security Changes, Accessed November 2, 2023
3CMS.gov. 2024 Medicare Parts A & B Premiums and Deductibles | CMS, October 12, 2023
4IRS.gov. 401(k) limit increases to $23,000 for 2024, IRA limit rises to $7,000 | Internal Revenue Service, November 1, 2023
5IRS.gov. Guidance on Section 603 of the SECURE 2.0 Act with Respect to Catch Up Contributions, Accessed November 2, 2023
6IRS.gov. WASHINGTON The Internal Revenue Service today announced cost of living adjustments applicable to dollar limitations for pen, Accessed November 2, 2023