401(k) Contribution Limits for 2024

The IRS has released new retirement plan contribution limits for 2024. These limits are determined based on plan type. The deferral limit—the amount employees can contribute to their account— for a 401(k) plan is $23,000, increased from $22,500. Along with deferral limits, the IRS has also released cost-of-living adjustments to compensation limits, which will take effect on January 1, 2024.

We’ll cover everything you need to know about the upcoming changes to your retirement plan in this comprehensive guide.

Key Takeaways:

• The IRS just released new retirement plan limits and cost-of-living adjustments.
• Catch-up contribution limits remain the same as 2023.
• IRA deductibility phase-out ranges for taxpayers see an increase in 2024.
• Compensation limits for employees, Highly Compensated Employees, (HCEs), and Key Employees have been adjusted for cost-of-living.

401(k) and IRA Contribution Limits

401(k) plan participants are permitted to contribute a total of $23,000 annually. This surpasses 2023’s amount of $22,500. IRA participants have a contribution limit of $7,000, previously $6,000.

Catch-up Contribution Limits

401(k) plan participants over the age of 50 have a catch-up contribution limit of $7,500, the same as 2023. With this in mind, participants who are aged 50 and older can contribute up to $30,500 to their 401(k) plan in 2024. The catch-up contribution limit for SIMPLE plan participants remains at $3,500 for 2024.

2024 Phase-out Ranges

A phase-out range gradually reduces a taxpayer’s tax credits and deductions as their income gets closer to a maximum amount. Taxpayers with traditional IRAs can deduct contributions from their taxes if they meet certain conditions. If the taxpayer or their spouse contributed to a workplace retirement plan during the plan year, the deduction may be reduced or phased out depending on the taxpayer’s filing status and income. If the individual isn’t enrolled in a workplace retirement plan, the deductions will not apply.

The following are the phase-out ranges for 2024:

• Single taxpayer enrolled in a workplace retirement plan: $77,000 to $87,000. This is up from $73,000 to $83,000.
• Married couples filing jointly: $123,000 to $143,000, previously $116,000 to $136,000.
• An IRA contributor who is not enrolled in a workplace retirement plan but is married to a person who is covered:  $230,000 to $240,000, up from $218,000 to $228,000.
• A married individual who is not covered by a workplace retirement plan will not be subject to a cost-of-living adjustment. In this case, the phase-out range remains at $0 to $10,000.

Cost-of-Living Adjustments

The IRS sets compensation limits—the maximum amount of compensation considered for employer contributions to a retirement plan— for individuals enrolled in a retirement plan. These limits have been adjusted for cost-of-living, effective in 2024.

The adjustments to compensation for certain employees enrolled in a retirement plan are as follows:

• Compensation Limit (Section 401(a)): $345,000 up from $330,000
• Highly Compensated Employee (HCE) Compensation Limit: $155,000 up from $150,000
• Key Employee (officer) Compensation Limit: $220,000 up from $215,000
• Defined Contribution Plan Annual Additions Limit (Section 415*): $69,000 up from $66,000

Conclusion:

Staying on top of retirement plan updates each year is a wise choice, whether you’re an employer, participant, or an advisor. Knowing how much an employee can contribute to their 401(k) can help employers stay compliant, while helping employees plan for retirement.