Plan Ahead for 2024 – IRS Retirement Contribution Limits Increase
The Internal Revenue Service has updated contribution limits for some retirement and savings accounts. The adjustments, in line with the cost-of-living increases as outlined by the IRS, take effect in 2024.
“These changes impact everything going forward from January first,” said Anna Sanchez, Account Executive, Newcleus Retirement Plan Advisors. “It gives employers and employees a chance to plan ahead for salary increases or bonuses coming up, to put that money aside for 401(k) or IRA planning.” She emphasized that maximizing savings strategies, and not solely relying on social security for retirement, takes planning. It’s not too soon to consider the recently announced changes.
401(k), 403(b), most 457, IRA plan contributions increase
The annual contribution increases affect several retirement plans. They include:
- 401(k), 403(b), most 457 and the federal government’s Thrift Savings Plan has increased from $22,500 to $23,000
- Individual Retirement Account (IRA) contribution increases from $6,500 to $7,000
Catch-up contributions limit remains steady
The catch-up contribution limit for employees aged 50 and over remained steady for 2024, but in combination with the increased annual contributions participants in 401(k), 403(b), most 457, and IRA plans, can add to their annual retirement savings starting in 2024.
- 401(k), 403(b), and most 457 federal government’s Thrift Savings Plan remain at $7,500.
- IRA catch-up contribution limit was amended under the SECURE 2.0 Act of 2022to include an annual cost of living adjustment but remains $1,000 for 2024.
Annual compensation limit increases
The IRS has specific annual compensation limits for how much an employee can earn while still being eligible for employer and employee contributions to a 401(k). In their new guidelines, the IRS has increased the annual compensation limit from $330,000 to $345,000. The increase will allow an employer to contribute funds into that employee’s 401(k) up until they earn $345,000 in 2024.
Defined contribution plan combined annual contribution increases
The IRS limits the amount contributed each year to a defined contribution plan like a 401(k) or 403(b) where an employee contributes a fixed amount or percentage of their pay, and the employer can also match or add to the employee contribution. The combined total from employer and employee will increase to $69,000 in 2024, up from $66,000 in 2023.
Defined benefit plan annual benefit limit increases
In a defined benefit plan, or pension, an employer guarantees a certain amount of retirement income. The maximum annual benefit that may be provided through a defined benefit plan has been increased to $275,000, up from $265,000, effective Jan. 1, 2024.
The importance of employer and employee education
“We try to meet with our clients at least two times per year with educational planning meetings where we talk about the savings strategies they should take, whether it’s pre-tax dollars in a 401(k) or post-tax dollars in a Roth 401(k),” Sanchez said. “We discuss all of the opportunities available and focus on maximizing savings strategies.”
Details and the technical guidance regarding cost-of-living adjustments and how they affect dollar limitations for 401(k), defined benefit and other retirement plans can be found in IRS Notice 2023-75. Review the changes and consider how they may impact your retirement and savings strategies for the upcoming year.
For more information and specific account limit updates, visit the official IRS website or consult with a qualified financial advisor. Newcleus is committed to providing the latest updates and resources to help you make informed financial decisions.
Anna Sanchez, Account Executive for Newcleus Retirement Plan Advisors, has over 20 years’ experience in retirement planning.
To learn more about how to plan ahead for 2024, or to address any questions you might have about these changes, contact our qualified plan experts today.
Anthony V. McCracken Jr., CFP®, Managing Director – Retirement Plans
Joe Gastaldi, AIF®,C(k)P®, CBFA®, Managing Director – Retirement Plans
Anna L. Sanchez, Account Executive – Retirement Plan Advisors