Updated on January 7, 2024
401(k) Contribution Limits for 2024: What You Need to Know
A recent report suggests that the Internal Revenue Service (IRS) contribution limits for retirement accounts will only see a slight increase in 2024, following a relatively large increase in 2023. The IRS increased the cost-of-living adjustment for 2023 due to inflation, resulting in a $2,000 increase. It is anticipated that there will be an additional $500 increase in 2024, bringing the maximum contribution level for 401(k), 403(b), and 457 plans to $23,000.
According to the report, the maximum yearly addition for defined contribution plans will range between $68,000 and $69,000. The limit on catch-up contributions for 2024 is expected to remain at $7,500, the same as in 2023.
What is a 401(k) Plan?
A 401(k) plan is a tax-deferred savings pension plan offered by employers to their employees. These plans are named after section 401(k) of the Internal Revenue Service code in the US. They have become the most widely used type of employer-sponsored retirement fund account in the country since their introduction in 1978.
The 401(k) plan allows eligible individuals to withdraw up to $100,000 without penalties, borrow up to $100,000 (or 100% of the vested balance), postpone loan payments for up to a year, and spread out withdrawal taxes over a three-year period. Additionally, for 2020, there were no mandatory minimum distributions (RMDs) for retirees aged 70.5 or older.
401(k) Contribution Limits in 2023 and 2024
The contribution limits for 401(k) accounts are set by the IRS and change annually. In 2023, the contribution limit is $22,500, which will increase to $23,000 in 2024. The catch-up contribution limit will remain at $7,500 for both years. For individuals under 50, the total contribution limit will be between $68,000 and $69,000 in 2024, while for individuals aged 50 and over, it will be between $75,500 and $73,500.
Strategies for 401(k) Contributions in 2024
Employer match programs are common in 401(k) plans, where employers match a certain percentage of an employee’s contribution. Taking advantage of the full employer match can provide free money and a guaranteed return on investment. Typically, employees need to contribute at least 6% of their pay to benefit from the full match.
Some employers also offer a Roth 401(k) option in addition to the traditional 401(k). With a Roth 401(k), contributions are made with after-tax dollars, but withdrawals in retirement are tax-free. Utilizing both traditional and Roth 401(k) plans can provide tax diversification and be beneficial in retirement.
It is important to note that contribution limits for 401(k) plans are subject to change, so it is recommended to stay updated with the latest IRS announcements and consult with a financial advisor to make the most informed decisions regarding retirement savings.
Overall, while there may only be a slight increase in IRS contribution limits for retirement accounts in 2024, it is crucial for individuals to take advantage of these opportunities to maximize their savings and prepare for a financially secure retirement.
Gary Wilson, a passionate dirt bike enthusiast and aspiring stunt rider, merges his love for finance with the thrill of biking in his engaging blog. From childhood dirt bike adventures to insightful financial considerations in the motocross world, Gary inspires others to pursue their passions fearlessly. When not conquering tracks, he captures the essence of his biking expeditions and financial insights through photography, offering a unique perspective on living life at full throttle. Follow Gary’s journey as he navigates the exhilarating terrain of both bikes and finance, encouraging enthusiasts to embrace courage and enthusiasm in every pursuit.
