IRA and Retirement Plan Limits for 2024

Income limits for deducting traditional IRA contributions

If you (or if you’re married, both you and your spouse) are not covered by an employer retirement plan, your contributions to a traditional IRA are generally fully tax deductible. If you’re married, filing jointly, and you’re not covered by an employer plan but your spouse is, your deduction is limited if your modified adjusted gross income (MAGI) is between $230,000 and $240,000, and eliminated if your MAGI is $240,000 or more.

If your filing status is single or head of household, you can fully deduct your IRA contribution up to $7,000 ($8,000 if you are age 50 or older) in 2024 if your MAGI is $77,000 or less. If you’re married and filing a joint return, you can fully deduct up to $7,000 ($8,000 if you are age 50 or older) if your MAGI is $123,000 or less.

Income limits for contributing to a Roth IRA

The income limits for determining how much you can contribute to a Roth IRA have also increased from 2023.

If your filing status is single or head of household, you can contribute the full $7,000 ($8,000 if you are age 50 or older) to a Roth IRA if your MAGI is $146,000 or less. And if you’re married and filing a joint return, you can make a full contribution if your MAGI is $230,000 or less. Again, contributions can’t exceed 100% of your earned income.

Employer retirement plan limits

The maximum amount you can contribute (your “elective deferrals”) to a 401(k) plan is $23,000 in 2024, increased from 2023. This limit also applies to 403(b) and 457(b) plans, as well as the Federal Thrift Plan. If you’re age 50 or older, you can also make catch-up contributions of up to $7,500 to these plans in 2024. [Special catch-up limits apply to certain participants in 403(b) and 457(b) plans.] The amount you can contribute to a SIMPLE IRA or SIMPLE 401(k) is $16,000 in 2024, and the catch-up limit for those age 50 or older is $3,500.

Note: Contributions can’t exceed 100% of your income.

IMPORTANT FENIMORE ASSET MANAGEMENT DISCLOSURES

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax
professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

The views and opinions expressed in this article are those of Broadridge Investor Communication Solutions, Inc. and do not necessarily reflect the views of Fenimore Asset Management or its officers. Fenimore Asset Management or its officers have no editorial control over the content of the article or subject matter, and is independent of Broadridge Investor Communication Solutions, Inc.

The information herein is subject to change and is not intended to be complete or to constitute all of the information necessary to evaluate adequately the consequences of investing in any securities or other financial instruments or strategies described herein. These materials also include information obtained from other sources believed to be reliable, but Fenimore does not warrant its completeness or accuracy. In no event shall Fenimore be liable for any use by any party of, for any decision made or action taken by any party in reliance upon, or for any inaccuracies or errors in, or omissions from, the information contained herein and such information may not be relied upon by you in evaluating the merits of participating in any transaction.

In part, the purpose of this presentation may be to provide investors with an update on financial market conditions. The description of certain aspects of the market herein is a condensed summary only. This summary does not purport to be complete and no obligation to update or otherwise revise such information is being assumed. These materials are provided for informational purposes only and are not otherwise intended as an offer to sell, or the solicitation of an offer to purchase, any security or other financial instrument. This summary is not advice, a recommendation or an offer to enter into any transaction with Fenimore or any of their affiliated funds.

We undertake no duty or obligation to publicly update or revise the information contained in this presentation. In addition, information related to past performance, while helpful as an evaluative tool, is not necessarily indicative of future results, the achievement of which cannot be assured. You should not view the past performance of Fenimore funds, or information about the market, as indicative of future results.

All projections, forecasts and estimates of returns and other “forward-looking” information not purely historical in nature are based on assumptions, which are unlikely to be consistent with, and may differ materially from, actual events or conditions. Such forward-looking information only illustrates hypothetical results under certain assumptions and does not reflect actual investment results and is not a guarantee of future results. Actual results will vary with each use and over time, and the variations may be material. Nothing herein should be construed as an investment recommendation or as legal, tax, investment or accounting advice.

Clients or prospective clients should consider the investment objectives, risks, and charges and expenses carefully before investing. You may obtain a copy of the most recent mutual fund prospectus by calling 800-932-3271 and/or visiting www.fenimoreasset.com.

There is no guarantee that any of the estimates, targets or projections illustrated in this summary will be achieved. Any references herein to any of Fenimore’s past or present investments, portfolio characteristics, or performance, have been provided for illustrative purposes only. It should not be assumed that these investments were or will be profitable or that any future investments will be profitable or will equal the performance of these investments. There can be no guarantee that the investment objectives of Fenimore will be achieved. Any investment entails a risk of loss. An investor could lose all or substantially all of his or her investment. Unless otherwise noted, information included herein is presented as of the date indicated on the cover page and may change at any time without notice.

Fenimore Asset Management Inc. is an SEC registered investment adviser; however, such registration does not imply a certain level of skill or training and no inference to the contrary should be made.

Comparison of Traditional
IRA’s and Roth IRA’s

IMPORTANT FENIMORE ASSET MANAGEMENT DISCLOSURES

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax
professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

The views and opinions expressed in this article are those of Broadridge Investor Communication Solutions, Inc. and do not necessarily reflect the views of Fenimore Asset Management or its officers. Fenimore Asset Management or its officers have no editorial control over the content of the article or subject matter, and is independent of Broadridge Investor Communication Solutions, Inc.

The information herein is subject to change and is not intended to be complete or to constitute all of the information necessary to evaluate adequately the consequences of investing in any securities or other financial instruments or strategies described herein. These materials also include information obtained from other sources believed to be reliable, but Fenimore does not warrant its completeness or accuracy. In no event shall Fenimore be liable for any use by any party of, for any decision made or action taken by any party in reliance upon, or for any inaccuracies or errors in, or omissions from, the information contained herein and such information may not be relied upon by you in evaluating the merits of participating in any transaction.

In part, the purpose of this presentation may be to provide investors with an update on financial market conditions. The description of certain aspects of the market herein is a condensed summary only. This summary does not purport to be complete and no obligation to update or otherwise revise such information is being assumed. These materials are provided for informational purposes only and are not otherwise intended as an offer to sell, or the solicitation of an offer to purchase, any security or other financial instrument. This summary is not advice, a recommendation or an offer to enter into any transaction with Fenimore or any of their affiliated funds.

We undertake no duty or obligation to publicly update or revise the information contained in this presentation. In addition, information related to past performance, while helpful as an evaluative tool, is not necessarily indicative of future results, the achievement of which cannot be assured. You should not view the past performance of Fenimore funds, or information about the market, as indicative of future results.

All projections, forecasts and estimates of returns and other “forward-looking” information not purely historical in nature are based on assumptions, which are unlikely to be consistent with, and may differ materially from, actual events or conditions. Such forward-looking information only illustrates hypothetical results under certain assumptions and does not reflect actual investment results and is not a guarantee of future results. Actual results will vary with each use and over time, and the variations may be material. Nothing herein should be construed as an investment recommendation or as legal, tax, investment or accounting advice.

Clients or prospective clients should consider the investment objectives, risks, and charges and expenses carefully before investing. You may obtain a copy of the most recent mutual fund prospectus by calling 800-932-3271 and/or visiting www.fenimoreasset.com.

There is no guarantee that any of the estimates, targets or projections illustrated in this summary will be achieved. Any references herein to any of Fenimore’s past or present investments, portfolio characteristics, or performance, have been provided for illustrative purposes only. It should not be assumed that these investments were or will be profitable or that any future investments will be profitable or will equal the performance of these investments. There can be no guarantee that the investment objectives of Fenimore will be achieved. Any investment entails a risk of loss. An investor could lose all or substantially all of his or her investment. Unless otherwise noted, information included herein is presented as of the date indicated on the cover page and may change at any time without notice.

Fenimore Asset Management Inc. is an SEC registered investment adviser; however, such registration does not imply a certain level of skill or training and no inference to the contrary should be made.

Simplified Employee Pension Plans (SEPs)

How do I set up a SEP plan?

Setting up a SEP plan is fairly easy. You may be able to establish a SEP by (1) simply signing IRS Form 5305-SEP, Simplified Employee Pension — Individual Retirement Accounts Contribution Agreement; (2) adopting a prepackaged prototype SEP from a bank, insurance company, financial institution, or other company; or (3) creating a custom-designed SEP. The easiest way is to use Form 5305-SEP. You can use this Form if you don’t maintain any other retirement plans, don’t use leased employees, and meet certain other IRS requirements.

You have until the due date of your business’s federal income tax return (including extensions) to set up a SEP and make contributions. By contrast, an ordinary IRA contribution can’t be made later than the due date of your federal income tax return, with no extensions (generally April 15). So if you’re self-employed and file for an extension you could have until October 15 to make a SEP contribution to your SEP-IRA.

Which employees must I include in the plan?

In general, you must include all employees who have (1) reached age 21, (2) worked for you at least three of the last five years, and (3) received a minimum amount of pay (at least $750 for 2023) from you for the year the contribution was made. An employee who meets the criteria above in any year must be covered under the SEP for that year even if he or she is not employed by you at the end of the year.

How do I contribute to my plan?

In order to avoid discrimination rules, most employers determine a contribution percentage for a year, and apply that same rate to all employees. However, contribution formulas can be more sophisticated and can even be integrated with Social Security (you’ll likely need professional assistance if you adopt a nonstandard contribution formula). Your contributions to the SEP are pre-tax dollars. This means that your employees can exclude your contributions from their gross income. In addition, the funds can grow tax deferred. Employer contributions and earnings are taxed when distributed from the SEP-IRA.

How much can I contribute to a SEP?

You can contribute up to 25% of compensation or $66,000, whichever is less, to an employee’s SEP-IRA in 2023 (up from $61,000 in 2022). Generally, when calculating the amount you can contribute in 2023, you can consider only the employee’s first $330,000 of compensation (up from $305,000 in 2022). If you’re self-employed, contributions to your own SEP-IRA are calculated differently. While the above limits also apply to you, your compensation is considered to be your net earnings from self-employment. Basically, your net earnings from self-employment represent the net income you earned in the business that established the SEP, less the deduction for contributions to your SEP and the deduction allowed to you for one-half of the self-employment tax. This effectively reduces your maximum contribution rate to 20% of compensation or $66,000 (in 2023), whichever is less.

Can my employees contribute?

SEPs are not like 401(k) plans — your employees cannot elect to contribute pre-tax dollars to a SEP-IRA from their pay.* However, your employees can make normal annual IRA contributions to their SEP-IRAs, just as they can to any other traditional IRA. Beginning in 2023, SEP-IRAs may accept Roth contributions as well.

What are some advantages of a SEP?

SEPs offer several advantages:

• You don’t have to make contributions to the SEP every year. You choose whether or not to make a contribution and, if so, how much to contribute. However, if you do make a contribution, it must be allocated among all participating employees according to a written allocation formula and must not discriminate in favor of highly compensated employees.
• Reporting requirements are minimal. Reporting requirements are fairly easy to satisfy. In fact, if you use Form 5305-SEP, you don’t even file the form with the IRS.
• Contribution/deduction limits are high. The contribution limits are much higher than those applicable to traditional IRAs and SIMPLE IRA plans, and are similar to those applicable to qualified retirement plans.
• A SEP does not preclude you or your employees from establishing or contributing to a separate IRA. In addition to any contribution made by the sponsoring business to your SEP-IRA, you and your employees can contribute up to the $6,500 annual maximum for 2023 (up from $6,000 in 2022) plus an additional $1,000 for those age 50 and older — or 100% of compensation, whichever is less — to either the SEP-IRA or separate IRA accounts. However, bear in mind that in any year for which SEP contributions are made, you and any of your employees participating in the SEP are considered to be covered by an employer-sponsored retirement plan. That means the deductibility of traditional IRA contributions will be subject to the IRA phase-out rules.
• Generally, you don’t have fiduciary responsibilities for your employees’ investment decisions. After you adopt a SEP plan, your employees typically set up individual SEP-IRAs (traditional IRAs) to accept contributions. Once your employee sets up a SEP-IRA account, he or she makes the investment decisions and bears all the risk of loss.

What are some disadvantages?

• You must include all eligible employees in the SEP. The rules for including employees in a SEP plan are generally more inclusive than the corresponding requirements for other employer-sponsored retirement plans. For example, in some cases, more part-time workers must be included in a SEP. As noted earlier, you may even have to include and make contributions for terminated employees. However, you don’t have to include an employee in your SEP plan until he or she has worked three years for you.
• Your employer contributions vest immediately. Unlike a qualified retirement plan such as a profit sharing plan, which generally allows vesting over time, your employees are immediately vested in SEP plan contributions. Once you make a contribution, it belongs to the employees. Consequently, a SEP might not be the best choice if your goal is to encourage employees to remain with your company long term by having vesting occur more gradually. Immediate vesting can also be costly if you have high employee turnover.
• All eligible employees must set up a SEP-IRA or modify an existing IRA to accept SEP contributions. The failure of even one qualifying employee to set up his or her own SEP-IRA or to modify a traditional IRA into a SEP-IRA may defeat the entire SEP. You can set up an IRA for an employee, but doing so may rob a SEP of its fundamental simplicity. It also means that you may incur certain fiduciary obligations.

IMPORTANT FENIMORE ASSET MANAGEMENT DISCLOSURES

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

Understanding IRA’s

Both traditional and Roth IRAs feature tax-sheltered growth of earnings. And both typically offer a wide range of investment choices. However, there are important differences between these two types of IRAs. You must understand these differences before you can choose the type of IRA that may be appropriate for your needs.

Traditional IRA’s

Practically anyone can open and contribute to a traditional IRA. The only requirement is that you must have taxable compensation. You can contribute the maximum allowed each year as long as your taxable compensation for the year is at least that amount. If your taxable compensation for the year is below the maximum contribution allowed, you can contribute only up to the amount you earned.

Your contributions to a traditional IRA may be tax deductible on your federal income tax return. This is important because tax-deductible (pre-tax) contributions lower your taxable income for the year, saving you money in taxes. If neither you nor your spouse is covered by a 401(k) or other employer-sponsored plan, you can generally deduct the full amount of your annual IRA contribution. If one of you is covered by such a plan, your ability to deduct your contributions depends on your annual income (modified adjusted gross income, or MAGI) and your income tax filing status. You may qualify for a full deduction, a partial deduction, or no deduction at all.

If you wish to defer taxes, you can leave your funds in the traditional IRA, but only until April 1 of the year following the year you reach age 73 (for those who reach age 72 after December 31, 2022). That’s when you have to take your first required minimum distribution (RMD) from the IRA. After that, you must take a distribution by the end of every calendar year until your funds are exhausted or you die. The annual distribution amounts are based on a standard life expectancy table. You can always withdraw more than you’re required to in any year. However, if you withdraw less, you’ll be hit with a 25% penalty on the difference between the required minimum and the amount you actually withdrew. (The penalty may be further reduced to 10% if you self-correct the error by withdrawing the shortfall amount and filing a return within a specific correction window.)

Roth IRAs

Not everyone can set up a Roth IRA. Even if you can, you may not qualify to take full advantage of it. The first requirement is that you must have taxable compensation. If your taxable compensation is at least $6,500 in 2023, you may be able to contribute the full amount. But it gets more complicated. Your ability to contribute to a Roth IRA in any year depends on your MAGI and your income tax filing status. Your allowable contribution may be less than the maximum possible, or nothing at all.

Qualified distributions will also avoid the 10% early withdrawal penalty. This ability to withdraw your funds with no taxes or penalty is a key strength of the Roth IRA. And remember, even nonqualified distributions will be taxed (and possibly penalized) only on the investment earnings portion of the distribution, and then only to the extent that your distribution exceeds the total amount of all contributions that you have made.

Another advantage of the Roth IRA is that there are no required distributions during your life. You can put off taking distributions until you really need the income. Or, you can leave the entire balance to your beneficiary without ever taking a single distribution.

Making the choice

Assuming you qualify to use both, which type of IRA might be appropriate for your needs? The Roth IRA might be a more effective tool if you don’t qualify for tax-deductible contributions to a traditional IRA or if you want to help reduce taxes during retirement and preserve assets for your beneficiaries. But a traditional deductible IRA may be a better tool if you want to lower your yearly tax bill while you’re still working and possibly in a higher tax bracket than you’ll be in during retirement.

Note: You can have both a traditional IRA and a Roth IRA, but your total annual contribution to all of the IRAs that you own cannot exceed the annual contribution limit.

IMPORTANT FENIMORE ASSET MANAGEMENT DISCLOSURES

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

The views and opinions expressed in this article are those of Broadridge Investor Communication Solutions, Inc. and do not necessarily reflect the views of Fenimore Asset Management or its officers. Fenimore Asset Management or its officers have no editorial control over the content of the article or subject matter, and is independent of Broadridge Investor Communication Solutions, Inc.

The information herein is subject to change and is not intended to be complete or to constitute all of the information necessary to evaluate adequately the consequences of investing in any securities or other financial instruments or strategies described herein. These materials also include information obtained from other sources believed to be reliable, but Fenimore does not warrant its completeness or accuracy. In no event shall Fenimore be liable for any use by any party of, for any decision made or action taken by any party in reliance upon, or for any inaccuracies or errors in, or omissions from, the information contained herein and such information may not be relied upon by you in evaluating the merits of participating in any transaction.

In part, the purpose of this presentation may be to provide investors with an update on financial market conditions. The description of certain aspects of the market herein is a condensed summary only. This summary does not purport to be complete and no obligation to update or otherwise revise such information is being assumed. These materials are provided for informational purposes only and are not otherwise intended as an offer to sell, or the solicitation of an offer to purchase, any security or other financial instrument. This summary is not advice, a recommendation or an offer to enter into any transaction with Fenimore or any of their affiliated funds.

We undertake no duty or obligation to publicly update or revise the information contained in this presentation. In addition, information related to past performance, while helpful as an evaluative tool, is not necessarily indicative of future results, the achievement of which cannot be assured. You should not view the past performance of Fenimore funds, or information about the market, as indicative of future results.

All projections, forecasts and estimates of returns and other “forward-looking” information not purely historical in nature are based on assumptions, which are unlikely to be consistent with, and may differ materially from, actual events or conditions. Such forward-looking information only illustrates hypothetical results under certain assumptions and does not reflect actual investment results and is not a guarantee of future results. Actual results will vary with each use and over time, and the variations may be material. Nothing herein should be construed as an investment recommendation or as legal, tax, investment or accounting advice.

Clients or prospective clients should consider the investment objectives, risks, and charges and expenses carefully before investing. You may obtain a copy of the most recent mutual fund prospectus by calling 800-932-3271 and/or visiting www.fenimoreasset.com.

There is no guarantee that any of the estimates, targets or projections illustrated in this summary will be achieved. Any references herein to any of Fenimore’s past or present investments, portfolio characteristics, or performance, have been provided for illustrative purposes only. It should not be assumed that these investments were or will be profitable or that any future investments will be profitable or will equal the performance of these investments. There can be no guarantee that the investment objectives of Fenimore will be achieved. Any investment entails a risk of loss. An investor could lose all or substantially all of his or her investment. Unless otherwise noted, information included herein is presented as of the date indicated on the cover page and may change at any time without notice.

Fenimore Asset Management Inc. is an SEC registered investment adviser; however, such registration does not imply a certain level of skill or training and no inference to the contrary should be made.