What Is the 401K Contribution Limit in 2024? Despite the official announcement scheduled for October, recent reports suggest that the Internal Revenue Service (IRS) is expected to make only a modest increase in retirement account contribution limits for 2024.
In 2023, there was a notable raise due to the cost-of-living adjustment prompted by inflation. The anticipated increase for 2024 is an additional $500, bringing the maximum contribution for 401(k), 403(b), and 457 plans to $23,000.
Key Changes for 2024
The maximum yearly addition for defined contribution plans is expected to range between $68,000 and $69,000. The limit on catch-up contributions for 2024 is projected to remain at $7,500, consistent with the 2023 amount.
401(k) Plans in America
401(k) plans are a prevalent form of retirement savings account in the United States. These tax-deferred savings pension plans, commonly provided by employers, derive their name from the relevant section of the Internal Revenue Service code. Established in 1978, 401(k) plans have become the most widely used type of employer-sponsored retirement fund account.
Historical Context and Legislative Response
The 2020 CARES Act, enacted in response to the COVID-19 pandemic, allowed eligible individuals to withdraw up to $100,000 without penalties, borrow up to $100,000 (or 100% of the vested balance), and postpone loan payments for up to a year. Additionally, mandatory minimum distributions (RMDs) for retirees aged 70.5 years or older were waived in 2020.
Projected Rise in 401(k) Contribution Limits
Experts anticipate a $500 increase in contribution limits for eligible 457 plans, 403(b) plans, and 401(k)s in 2024. This would raise the contribution limits to $23,000 from $22,500 in 2023, following a $1,000 increase from 2022 to 2023.
401(k) Contribution Limits Comparison (2023 vs. 2024)
| Contribution | 2024 | 2023 |
|---|---|---|
| 401(k) contribution limit | $23,000 | $22,500 |
| 401(k) Catch-up contribution | $7,500 | $7,500 |
| 401(k) Total contribution <50 | $68,000 | $66,000 |
| 401(k) 50+ total contribution | $75,500 | $73,500 |
Strategies for 401(k) Contribution Limits 2024
Employer matches, typically at 50 cents on the dollar, up to 6 percent of an employee’s salary, can provide substantial benefits. To maximize this, employees may need to contribute 6% of their pay to their 401(k). Utilizing the employer match plan can offer a valuable return on investment.
Traditional vs. Roth 401(k)
Some employers offer a Roth 401(k) in addition to the standard 401(k). Contributions to a traditional 401(k) allow for the deferral of income tax, while a Roth 401(k) doesn’t provide an early tax benefit but offers tax-free withdrawals in retirement. Investing in both types can offer tax diversification, providing flexibility in retirement planning.
Contributing to Both Traditional and Roth 401(k)
Employees can contribute to both a traditional and a Roth 401(k), as long as the total contributions do not exceed the specified limit. This allows for strategic tax planning and diversification in retirement portfolios.
Conclusion
401(k) contribution limits is crucial for effective retirement planning. As we anticipate modest increases in 2024, individuals should strategize wisely, leveraging employer matches and considering the benefits of both traditional and Roth 401(k) options for optimal financial security.
