In Notice 2023-75 (Nov. 1, 2023), the IRS announced inflation-adjusted retirement plan limitations for 2024. Here are the changes (or non-changes) that will have the widest impact:
The maximum annual addition to a participants’ accounts in defined contribution plans for plan years ending in 2024 is $69,000 ($66,000 for years ending in 2023). Annual additions include all contributions and forfeitures allocated to the account (but not earnings credited to it). All plans in the same controlled group must be aggregated for purposes of this limitation. [IRC §415(c)]
The dollar limitation on the projected annual benefit of a participant in a defined benefit plan as of the last day of the plan year beginning in 2024 is $275,000 ($265,000 in 2023). The limitation is actuarially adjusted if payment of the benefit begins before age 62 or after age 65 or is in a form other than a life annuity or a qualified joint-and-survivor annuity. [IRC §415(b)]
The maximum elective deferral under 401(k) plans, 403(b) plans and SARSEP’s for calendar year 2024 is $23,000 ($22,500 in 2023). This limitation applies not only to individual plans but also to participants’ aggregate elective deferrals under all plans in which they participate. [IRC §402(g)]
Individuals who will be at least 50 years old on December 31, 2024, may make additional elective deferrals of up to $7,500 (“catch-up contributions”). That figure is unchanged from 2023. [IRC §414(v)(2)(B)(i)]
The maximum contribution for calendar year 2024 for a participant in an IRC §457(b) eligible deferred compensation plan (available only to government employers and tax-exempt organizations) is $23,000 ($22,500 in 2023). A participant who will be at least 50 years old on December 31, 2024, may make up to an additional $7,500 in elective deferrals (unchanged from 2023). (There is an alternative catch-up rule for participants who are within three years of the normal retirement age specified in the plan, but we will omit describing it here, as it has no provision for cost-of-living adjustments.) The limitation applies both to plans and to participants' total contributions under all 457(b) plans in which they participate. It is, however, independent of contributions under qualified plans, 403(b) plans, SARSEP's and SIMPLE IRA plans. [IRC §457(e)(15)]
The maximum compensation that a qualified plan or 403(b) plan may take into account for plan years beginning in 2024 is $345,000 ($330,000 for years beginning in 2023). This limitation applies to the calculation of benefits, nondiscrimination testing and any other purpose for which compensation is pertinent. [IRC §401(a)(17)]
The maximum salary reduction under a SIMPLE IRA plan for calendar year 2024 is $16,000 ($15,500 in 2023). This limitation applies only to plans. If someone contributes to more than one SIMPLE IRA plan or to a SIMPLE IRA plan and other plans that accept elective deferrals, the total of all of those contributions in calendar year 2024 may not exceed $23,000 ($22,500 in 2023). [IRC §408(p)(2)(E)] Catch-up contributions to SIMPLE IRA plans in 2024 are limited to $3,500, unchanged from 2023. [IRC §414(v)(2)(B)(ii)]
Coverage and benefits in qualified plans and 403(b) plans may not “discriminate” in favor of “highly compensated employees”. Employees are classified as “highly compensated” for a plan year if their compensation for the preceding plan year exceeded an indexed threshold: $135,000 in 2022, $150,000 in 2023, $155,000 in 2024. Hence, someone who earned more than $135,000 in 2022 is a highly compensated employee in 2023. Employers may elect to restrict highly compensated status to employees who in the preceding year both had compensation in excess of that year’s threshold and were in the top 20 percent of pay for all employees in the employer’s controlled group.
For historical data, see the IRS publication Cost-of-Living Adjustments for Retirement Items, which provides a comprehensive list of limitations from 1989 through 2024.
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