Hi Friendos,
Today’s topic is for people who are very dialed in on saving and wonder: How much can I put into retirement savings accounts each year if I have more than one type of account?
Lots of people have an IRA and a 401k, or an IRA and a 403b. Some people have a 457 at their job. Some people are self-employed and have a solo 401k or SEP IRA. Some people work multiple jobs, at the same time or at different times during a calendar year, and each job has its own 401k plan. There are lots of possible combinations.
This is the Boring Newsletter, but even I would find it too boring to scope out all the possibilities! I’ll try to lay out a framework to help you understand what might apply to your personal situation, highlight key considerations, and illustrate with a few common scenarios.
I think of “retirement saving accounts” as either tied to a job or not, and falling into one of three categories: job-based, HSAs, and IRAs.
- By “IRA” I mean a traditional IRA or a Roth IRA. I consider SEP and SIMPLE IRAs in the job-based category or retirement accounts because they involve an employer in their set up. You set up a traditional IRA or a Roth IRA account on your own.
HSA and IRA contribution limits are separate from each other and from job-based account limits. In general, the max you can contribute across types of accounts is:
HSA max + IRA max + job-based max
Given your personal situation, any of these three components could equal $0 in a particular year.
Today I’ll discuss HSA and IRA maximums. Next week we’ll tackle job-based maximums.
HSAs have their own, independent contribution limits. I think of HSAs as a type of retirement account due to the possibility of investing funds that sit inside the account. I discussed this in a prior newsletter.
- If you have a high-deductible health plan with an HSA, in 2024 you can put in a maximum of $4,150 with self-only coverage if you are under age 55 or $8,300 with family coverage.
- Any money your employers puts into your HSA on your behalf does count against this limit.
- If you are over age 55 and not on Medicare, you can put in an additional (“catch-up”) contribution of $1,000. If you have family coverage and your spouse/domestic partner is also over age 55 and not on Medicare, they can also put in an additional contribution of $1,000 if they have their own HSA plan.
- If you don’t have HDHP coverage all year long, the maximum is pro-rated by the fraction of the year (# of months) you did have coverage. If you had HDHP coverage on the first of the month, that month counts as HDHP.
Some HSA examples:
HSA Example #1: You have self-only coverage at the beginning of the year, but leave your job on June 3rd and don’t have an HDHP the rest of the year. You were eligible Jan to June (1st of the month counts for the month), so 6 months of eligibility is 1/2 the year. Your HSA contribution limit is $4,150/2 = $2,075.
HSA Example #2: You and your partner are both covered by a high-deductible medical plan through your partner’s job and this is true for all of 2024. Neither of you is over age 55. Your partner can contribute up to $8,300 to their HSA; if they do this, you cannot contribute anything to your own HSA account. Alternatively, you could contribute $8,300 to your own HSA account (your partner could not contribute anything to their HSA that year). You could each contribute $4,150 to your own HSA accounts, or some other split that totals to $8,300.
HSA Example #3: Same as #2, except you are both over age 55 and not on Medicare. Between the two of you, you can split the family-contribution of $8,300 however you want – it can go 100% into your partner’s HSA, 100% into your HSA, or split between the two any way you like. Each person’s additional $1,000 can only go into their own HSA. If you don’t already have your own HSA account, you can establish one just for the extra $1k contribution. Keep in mind that only HSA contributions made via payroll deductions will escape 7.65% payroll taxes.
HSA Example #4: You and your kids are covered by an HDHP at your job, and your partner is covered by one at their job. You have one family coverage limit of $8,300.
IRAs have their own, independent contribution limits.
- In 2024, if you are under age 50, the maximum contribution is the lesser of (i) your taxable income and (ii) $7,000. If you are age 50+, it is the lesser of your taxable income and $8,000 because you can also make an additional (“catch-up”) contribution of $1,000.
- You can put in up to $7k as long as you make at least that much. See exception for spousal IRA below.
- The max is the same for traditional IRAs and Roth IRAs, but you only get $7,000 across all your traditional and Roth IRA accounts.
- If your income is above a certain level, your deduction to a traditional IRA is limited (or $0) so there is less tax advantage from contributions. In that scenario, you can choose to do a “backdoor” Roth contribution (I’ll write about this another time).
- Spousal IRA: As the IRS says, “If you file a joint return, you may be able to contribute to an IRA even if you didn’t have taxable compensation as long as your spouse did. Each spouse can make a contribution up to the current limit; however, the total of your combined contributions can’t be more than the taxable compensation reported on your joint return.”
Some IRA examples:
IRA Example #1: You are single and earn taxable income of $50k in 2024 (doesn’t matter if through W-2 work or self-employment work, doesn’t matter if at multiple jobs or a single job). You have a traditional IRA account that was created after you did a rollover from your old job’s 403b. You also have a Roth IRA you opened last year. Across your two IRA accounts, you can put in up to $7,000. It can go 100% into the Roth IRA, 100% into the traditional IRA, half into each, or split up some other proportion between the two.
IRA Example #2: You earn taxable income of $80k in 2024. Partway through the year, you left your job where you had $73k in your Roth 401k. You did a rollover of your Roth 404k into a Roth IRA account. Rollover amounts don’t count toward the limit, so you can put an additional $7k into your Roth IRA for 2024.
Next week I’ll turn to job-based maximums and continue the discussion.
-Stephanie
Frequently Taxed Questions 