Seyfarth Synopsis: The IRS just announced the 2024 annual limits that will apply to tax-qualified retirement plans. For a third year in a row, the IRS increased the annual limits, allowing participants to save even more in 2024. Employers maintaining tax-qualified retirement plans will need to make sure their plans’ administrative procedures are adjusted accordingly.
In Notice 2023-75, the IRS announced the various limits that apply to tax-qualified retirement plans in 2024. The “regular” contribution limit for employees who participate in 401(k), 403(b) and most 457 plans will increase from $22,500 to $23,000 in 2024. The “catch-up” contribution limit for individuals who are or will be age 50 by the end of 2024 is not changing, and remains $7,500 for 2024. Thus, if you are or will be age 50 by the end of 2024, you may be eligible to contribute up to $30,500 to your 401(k) plan in 2024. These same limitations apply if you work for a governmental or tax-exempt employer and participate in a 403(b) plan.
The maximum that may be contributed to a defined contribution plan (e.g., 401(k) or 403(b) plan), inclusive of both employee and employer contributions, will increase from $66,000 to $69,000 in 2024. Additionally, the maximum annual compensation that may be taken into account under a plan will increase from $330,000 to $345,000 for 2024. For individuals investing in individual retirement accounts (IRAs), the annual contribution limit will increase from $6,500 to $7,000 for 2024 (for those who are catch-up eligible, the limit will increase from $7,500 to $8,000 for 2024).
The Notice also includes several other notable retirement-related limitation changes for 2024, including the dollar limitation on the annual benefit under a defined benefit plan, which increases from $265,000 to $275,000; the dollar limit used to determine a highly compensated employee, which increases from $150,000 to $155,000; and the dollar limit used when defining a key employee in a top-heavy plan, which increases from $215,000 to $220,000.
Individuals should check their plan contribution elections and consult with their personal tax advisor before the end of 2023 to make sure that they take full advantage of the contribution limits in 2024. Given the numerous changes, employers who sponsor a tax-qualified retirement plan should consider any necessary adjustments to plan administrative procedures and update their participant notices to ensure proper administration of the plan in 2024.
Employers who sponsor defined benefit pension plans (e.g., cash balance plans) also should be sure to review the new limits in the IRS Notice and make any necessary adjustments to plan administrative/operational procedures.