Using retirement accounts is a great way to save money long-term because of the unique tax advantages they can offer. This is also true for people investing in digital assets because it’s possible to invest your retirement savings into a “Digital IRA”.
However, the specific rules and limits for a particular retirement account can change each year as the IRS updates its guidelines based roughly around inflation. As dollars become worth less, you’ll need more of them to retire comfortably. So the IRS tends to increase the amount of tax-advantaged contributions you can make to your retirement accounts as the years go by.
What’s new in 2024?
The IRS rules are for specific tax years, and for 2024 the IRS has announced some increases to contribution limits for retirement accounts. This means for the 2024 tax year, you’ll be able to contribute more into your retirement accounts than you could in 2023. How much more depends on the type of account (and your age).
401(k) accounts have had their contribution limit increased from $22,500 to $23,000 and IRA account contribution limits have increased from $6,500 to $7,000.
Catch-up contribution limits, an additional amount people over the age of 50 can contribute to their retirement funds, have not changed for 2024.
What are retirement account contribution limits?
| Account Type | 2024 Contribution Limit | 2023 Contribution Limit | 2024 Catch-up Contribution Limit (> age 50) | 2023 Catch-up Contribution Limit (> age 50) |
| Traditional IRA | $7,000 | $6,500 | $1,000 | $1,000 |
| Roth IRA | $7,000 | $6,500 | $1,000 | $1,000 |
| 401(k) | $23,000 | $22,500 | $7,500 | $7,500 |
| SIMPLE IRA | $16,000 | $15,500 | $3,500 | $3,500 |
| 403(b) | $23,000 | $22,500 | $7,500 | $7,500 |
| 457(b) | $23,000 | $22,500 | $7,500 | $7,500 |
| TSP | $23,000 | $22,500 | N/A | N/A |
| HSA | $4,150 (individual)$8,300 (family) | $3,850 (individual)$7,750 (family) | $1,000 | $1,000 |
Types of retirement accounts
Traditional IRAs
A Traditional IRA is a retirement savings account in which pre-tax dollars are invested. Because it’s pre-tax, any money invested into a Traditional IRA is not taxed today, thereby lowering your income (and today’s income taxes, too). However, any money you withdraw during retirement will be subject to income taxes.
Anyone can invest in a Traditional IRA, regardless of employment status or income. This makes Traditional IRAs the most accessible retirement savings vehicle available.
Roth IRAs
Instead of investing pre-tax dollars toward retirement, Roth IRAs allow you to invest after-tax dollars. The difference is that by paying taxes on contributions today, savings you withdraw in retirement are completely tax-free. But unlike Traditional IRAs, not everyone can invest in a Roth IRA as the retirement account is limited by income.
For instance, in 2023, the income limits for the full Roth IRA contribution were $138,000 and $218,000 for individual and joint filers, respectively. These income limits are now changing to $146,000 and $230,000 for 2023.
401(k)s
As an employer-sponsored retirement account, 401(k)s are managed and controlled by your employer. Your employer may offer a Traditional 401(k) option, a Roth 401(k) option, or both.
Generally, a 401(k) plan allows you to choose investments from a pre-selected list set by your employer. A benefit of a 401(k) is that your employer may contribute additional funds toward your balance, which is essentially “free” money for retirement.
SIMPLE IRAs
A SIMPLE IRA — short for Savings Incentive Match Plan for Employees — is a retirement plan for smaller employers. SIMPLE IRAs have lower costs and expenses than 401(k)s, while allowing for higher contribution limits than Traditional IRAs. This type of retirement account is most often found among small businesses.
SEP IRAs
In a Simplified Employee Pension (SEP) IRA, an employer contributes funds directly to their employees’ IRA plans. Most often, SEP IRAs are used by self-employed individuals who can increase their IRA contribution limits through the retirement account.
403(b)s
403(b)s are similar to 401(k)s for nonprofit organizations and public school systems. 403(b)s have identical contribution limits and restrictions as 401(k)s and some added benefits like shorter vesting periods for contributions and an exemption from nondiscrimination testing (a test to ensure an employee-sponsored retirement program doesn’t unfairly favor highly-compensated employees and owners).
457(b)s
Employees of state and local governments have their own type of retirement account known as a 457(b). A 457(b) account is similar to a Traditional IRA in that it allows for pre-tax contributions.
Thrift Savings Plans (TSPs)
A Thrift Savings Plan (TSP) is a type of retirement account restricted to members of the armed forces and employees of the federal government. TSPs are the most limited type of retirement account, with only six funds available for investment. However, TSPs are very beneficial as they have high contribution limits and no income restrictions.
HSAs
Another way to save money on taxes is through a Health Savings Account (HSA). You can deposit money into an HSA to pay for qualified medical expenses. This money is deposited pre-tax, and therefore exempt from federal taxes.
However, HSAs are only available for those who have high-deductible health insurance plans: $4,150 for an individual or $8,300 for those with family coverage.
What does this mean for cryptocurrency investments?
Interest for cryptocurrency and other digital assets has been on the rise, and throughout 2023 we’ve seen the industry chomping at the bit for sensible regulations which finally appear to be on the horizon. Institutional adoption has been increasing, and when the U.S. clarifies its crypto-regulations that could be the catalyst needed to open the floodgates. That makes now a great time to get into cryptocurrency, and for those interested in long-term investing, a tax-advantaged IRA account is the way to go.
With contribution limits increasing this year, it means you’ll be able to put more money into your future. If a Digital IRA is right for you, then BitIRA is here to help you navigate the road ahead and maximize your retirement savings with digital assets.