Annual contribution limits for straightforward IRAs in 2024

For 2024, you can contribute up to $16,000 to a straightforward IRA if you are an employee, and your employer can contribute up to 3% of your salary or a flat 2% regardless of whether you contribute. If you are self-employed and own the business, you can contribute both as an employee and as an employer, which means your total can be higher — but the employee portion is still capped at $16,000.

These limits change each year. The IRS adjusts the employee contribution limit for inflation in $500 increments, so you will see updates announced in October or November for the following year. The employer contribution percentage (3% or 2%) does not change, but the dollar amount it represents grows as your salary grows.

If you are age 50 or older, you can contribute an additional $3,500 as a catch-up contribution, bringing your employee total to $19,500 for 2024. This catch-up amount also adjusts for inflation in $500 increments.

Key Takeaways

  • Employees can contribute up to $16,000 in 2024, plus an additional $3,500 if age 50 or older.
  • Employers must contribute either 3% of your salary or a flat 2%, even if you contribute nothing yourself.
  • Self-employed business owners can contribute as both employee and employer, but the employee limit of $16,000 still applies to that portion.
  • Contribution limits increase each year for inflation, usually announced in the fall for the following year.
  • You must stop contributing once you reach the annual limit, even if the year is not yet over.

How employer contributions work alongside your own

Your employer's contribution is separate from your own and does not count toward your $16,000 limit. If your employer chooses the 3% option, they contribute 3% of your gross salary whether you contribute anything or not. If they choose the 2% option, they contribute 2% of your salary to every employee's account, again regardless of whether you contribute.

Some employers use the 3% option only for employees who also contribute to their own accounts — this is called a matching contribution. Others use the 2% option, which is a non-elective contribution that goes in even if you put in nothing. Your employer decides which approach to use, and that choice applies to all employees in the plan.

The total of your contribution plus your employer's contribution cannot exceed 100% of your compensation or $69,000 for 2024, whichever is less. This limit matters mainly for self-employed people or high-income employees, because most employees will hit the $16,000 cap before reaching the overall limit.

Contribution limits if you are self-employed

If you own the business and are the only employee, or if you own it and also employ others, you wear two hats: employee and employer. As the employee, you can still only contribute $16,000 (or $19,500 with catch-up). As the employer, you can contribute up to 3% of your net self-employment income or 2%, depending on which option you chose for the plan.

Your net self-employment income is your business profit minus half of your self-employment tax. This number is what your employer contribution percentage is calculated against. If your business earned $100,000 in net self-employment income and you chose the 3% option, you can contribute $3,000 as the employer. You can also contribute $16,000 as the employee, for a total of $19,000 — still under the $69,000 overall cap.

If you have employees, you must contribute the same percentage for them as you do for yourself. If you choose 3% matching, you must match 3% for any employee who contributes. If you choose 2% non-elective, you must contribute 2% for every employee, whether they contribute or not.

What happens if you contribute too much

If you contribute more than the annual limit, the excess amount is considered an excess contribution. You must withdraw the excess and any earnings on it by the tax filing important date (usually April 15 of the following year) to avoid a 6% excise tax on the excess amount each year it remains in the account.

Your employer should track contributions throughout the year to help you stay under the limit. If you have multiple jobs with straightforward IRA plans, your total employee contributions across all jobs cannot exceed $16,000. You are responsible for tracking this yourself if you work for more than one employer with a straightforward IRA.

If your employer contributes too much, they must correct it. Excess employer contributions are not your responsibility, but they do reduce the amount of space you have left in your own contribution limit for that year.

When contribution limits explore during the year

Contributions are measured by calendar year, January 1 through December 31. You can contribute at any time during the year, but once you reach the limit, you must stop. If you reach $16,000 in October, you cannot contribute again until January 1 of the next year, even though you have two more months of paychecks coming.

Your employer should stop withholding contributions from your paycheck once you reach the limit. If they do not, you will need to ask them to stop and then request a refund of the excess. Some payroll systems do this automatically; others require manual intervention.

Catch-up contributions for people age 50 and older are treated the same way — once you contribute $3,500 in catch-up funds, you cannot contribute more catch-up money that year. Your regular employee contributions and catch-up contributions are tracked separately by your plan administrator.

How contribution limits compare to other retirement accounts

A straightforward IRA has lower contribution limits than a 401(k) plan. In 2024, a 401(k) allows employees to contribute up to $23,500 (or $31,000 with catch-up at age 50 or older), and employers can contribute additional amounts. A straightforward IRA tops out at $16,000 for employees, making it better suited for smaller businesses or self-employed people who do not need the higher limits.

A traditional or Roth IRA (not connected to an employer) has the same $7,000 limit in 2024 (or $8,000 with catch-up). If you have access to a straightforward IRA through your employer, you can contribute to both a straightforward IRA and a regular IRA, but your regular IRA contributions do not reduce your straightforward IRA limit — they are separate accounts with separate limits.

A SEP IRA (Simplified Employee Pension) allows self-employed people and small business owners to contribute up to 25% of net self-employment income or $69,000 in 2024, whichever is less. This is much higher than a straightforward IRA, but a SEP IRA requires you to contribute the same percentage for all employees, which can be expensive if you have staff.

Frequently Asked Questions

Can I contribute to a straightforward IRA and a regular IRA in the same year?

Yes. Your straightforward IRA contributions and regular IRA contributions are tracked separately and have separate limits. You can contribute $16,000 to a straightforward IRA and $7,000 to a regular IRA in 2024 (or higher amounts if you are age 50 or older). However, if you have a regular IRA and a straightforward IRA, you may have restrictions on deducting regular IRA contributions depending on your income.

What if I leave my job mid-year after contributing to a straightforward IRA?

Your contributions stay in the account and count toward your annual limit. If you start a new job with a different straightforward IRA plan, your total employee contributions across both jobs cannot exceed $16,000 for the year. You are responsible for tracking this and telling your new employer how much you have already contributed elsewhere.

Do employer contributions count toward my $16,000 limit?

No. Your employer's contribution is separate. You can contribute $16,000 as an employee, and your employer can contribute an additional 3% or 2% without affecting your limit. However, the combined total of your contributions plus employer contributions cannot exceed $69,000 for 2024.

Can I contribute more if my salary is very high?

No. The $16,000 employee contribution limit applies to everyone, regardless of salary. Your employer can contribute a higher dollar amount if your salary is high (because 3% or 2% of a larger salary is a larger number), but your own contributions are capped at $16,000.

How do I know if I have contributed too much?

Your plan administrator should send you a statement showing your contributions. If you work for multiple employers with straightforward IRAs, you need to add up your contributions across all jobs yourself. If the total exceeds $16,000, contact your plan administrator about withdrawing the excess before the tax filing important date.