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IRS releases 2024 retirement plan limitations
ARTICLE | November 03, 2023
Authored by RSM US LLP
2024 retirement plan limits released
The IRS issued Notice 2023-75, which made modifications to the annual limits for retirement plans. These limits are updated annually for cost-of-living adjustments.
IRS releases 2024 retirement plan limitations
2024 limits
Effective Jan. 1, 2024, the following limits apply:
|
| 2024 | 2023 | 2022 | 2021 |
| 401(k), 403(b) and 457 elective deferral limit | $23,000 | $22,500 | $20,500 | $19,500 |
| Catch-up contribution limit (age 50 and older) | $7,500 | $7,500 | $6,500 | $6,500 |
| Annual compensation limit | $345,000 | $330,000 | $305,000 | $290,000 |
| Defined contribution plan limit | $69,000 | $66,000 | $61,000 | $58,000 |
| Defined benefit plan limit | $275,000 | $265,000 | $245,000 | $230,000 |
| Definition of highly compensated employee | $155,000 | $150,000 | $135,000 | $130,000 |
| Key employee | $220,000 | $215,000 | $200,000 | $185,000 |
| IRA contribution limit | $7,000 | $6,500 | $6,000 | $6,000 |
| IRA catch-up contributions (age 50 and older) | $1,000 | $1,000 | $1,000 | $1,000 |
| SIMPLE IRA and SIMPLE 401(k) salary deferral limit | $16,000 | $15,500 | $14,000 | $13,500 |
| SIMPLE IRA and SIMPLE 401(k) catch-up limit | $3,500 | $3,500 | $3,000 | $3,000 |
Income phase-out ranges for various individual retirement account (IRA) purposes increased from between $73,000 and $83,000 to between $77,000 and $87,000 for single and head-of-household taxpayers. Similar incremental changes were made to the limits for married filing jointly and married filing separately taxpayers. For more information, refer to Notice 2023-75.
Considerations
The increases to the 2024 limits are not as large as the increases were to the 2023 limits and reflect a slowdown in inflation. Of the limits shown in the table above, the IRA contribution limit showed the largest percent increase, followed by the annual compensation and defined contribution plan limits. No catch-up contribution limits were adjusted this year.
Impact of SECURE 2.0 on 2024 limits
- The SECURE 2.0 Act (Act) increased the amount that an IRA or defined contribution plan could pay in premiums for a qualified longevity annuity contract to $200,000 for 2023. This limit remains the same for 2024.
- The Act authorized indexing of the catch-up contribution limit for IRAs. Despite this change being effective for 2024, the cost- of- living adjustment procedures did not result in an increase to the IRA catch-up contribution limit.
- Participants in SIMPLE 401(k) and SIMPLE IRA plans can take advantage of an increased deferral limit of $17,600 (i.e., 110% of the $16,000 annual limit) if their employer meets one of the following conditions:
- has 25 or fewer employees receiving at least $5,000 of compensation, or
- has more than 25 but not more than 100 employees and makes either a 4% matching contribution or a 3% nonelective contribution.
The 10% increase in the annual limit also applies to the catch-up deferral limit available to participants who are age 50 or older.
What should you do now?
The limits shown above become effective Jan. 1, 2024. Employers and employees should review these limit changes and consider how they are impacted. Employers sponsoring SIMPLE IRAs or SIMPLE 401(k)s should especially review whether the limit changes going into effect under SECURE 2.0 this upcoming year are applicable to them. Any necessary action to prepare for these limit changes, such as conversations with plan recordkeepers or third-party administrators, should be completed in the near term. Employers are also reminded that retirement plans that run on a fiscal year should be careful in applying these changes, as some limits are always calendar-year limits (e.g., the elective deferral limit), while other limits apply on a plan-year-beginning basis (e.g., the annual compensation limit).
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This article was written by Bill O’Malley, Christy Fillingame, Lauren Sanchez and originally appeared on 2023-11-03.
2022 RSM US LLP. All rights reserved.
https://rsmus.com/insights/tax-alerts/2023/irs-releases-2024-retirement-plan-limitations.html
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