Introduction
When it comes to planning for retirement, a 401k plan is one of the most popular and effective tools available. It allows individuals to save for retirement while enjoying certain tax benefits. However, it’s crucial to understand the contribution limits that govern these plans. In this guide, we will explore the 401k contribution limits for 2024, including important updates, catch-up contributions, employer contributions, and compensation limits.
The 2024 401k Contribution Limit
One factor to consider when contributing to a 401k savings plan is the contribution limit (the maximum amount of money you can put in your 401k for a given year) set by the IRS. In 2024, the contribution limit for 401k plans, including 403(b) plans, and most 457 plans, will increase to $23,000. This is an increase from the 2023 limit of $22,500.
To take full advantage of this higher limit, individuals can adjust their contribution percentages or dollar-based employee deferrals to ensure they reach the maximum contribution. By contributing the additional money per month, individuals can make the most of their 401k plans and secure a more financially stable retirement.
The 2024 401k Catch-Up Contribution Limit
For individuals aged 50 years or older, catch-up contributions are available to boost savings ahead of retirement. Catch-up contributions allow these individuals to contribute extra money in their 401k plans to accelerate their savings ahead of retirement especially if they couldn’t maximize contributions earlier in life. In 2024, the catch-up contribution limit remains the same as 2023 at $7,500. This means that individuals in this age range can contribute $30,500 to their 401k plans in 2024.
The 2024 401k Limit for Employer Contributions
Employer contributions can provide an additional boost to an individual’s 401k savings. Employers have the option to make matching or nonmatching contributions on behalf of their employees, even if the employee has already reached their personal contribution limit. The overall contribution limit, including both employer and employee deposits, is set at 100% of the participant’s compensation or $69,000, whichever is less.
In the case of employees aged 50 and older, the overall contribution limit increases to $76,500, taking into account the catch-up contributions.
The 2024 401k Compensation Limit
Highly compensated employees may face certain limitations when it comes to making 401k contributions. In 2024, a 401k plan can choose to stop salary deferrals once a participant’s compensation reaches $345,000. Additionally, the plan can only use up to this amount when providing a 401k match.
This compensation limit increase from $330,000 in 2023 aims to ensure fairness and equitable distribution of retirement benefits. Highly compensated employees can still take advantage of the catch-up contribution provision, allowing them to contribute up to $7,500 in 2024.
Conclusion
Understanding the 401k contribution limits for 2024 is crucial for effective retirement planning. By staying informed about the latest updates, catch-up contributions, employer contributions, and compensation limits, individuals can make well-informed decisions to maximize their retirement savings. Remember to consult with a financial advisor or tax professional to ensure compliance with IRS regulations and develop a personalized retirement strategy that aligns with your financial goals.
For those of you that also have IRAs, make sure to check out what the 2024 IRA contribution limits are!
Start planning for your future today and take full advantage of the opportunities offered by your 401k plan. With careful consideration and strategic contributions, you can build a solid foundation for a financially secure retirement.
Disclaimer: This article is for informational purposes only and should not be considered financial or tax advice. Please consult with a qualified professional before making any financial decisions.
