Retirement savers are eligible to put $500 more in a 401(k) plan in 2024: The contribution limit will increase from $22,500 in 2023 to $23,000.
In addition, the income limits to claim the saver’s credit, along with the employer and employee contribution limits and compensation limit, will increase next year.
[READ: How to Claim the Saver’s Credit.]
Here’s how the 401(k) plan limits will change in 2024:
— The 401(k) contribution limit is $23,000.
— The 401(k) catch-up contribution limit is $7,500 for those 50 and older.
— The limit on employer and employee contributions is $69,000.
— The 401(k) compensation limit is $345,000.
— The income limits for the saver’s credit will increase to $38,250 for individuals and $76,500 for couples.
Pay attention to these new 401(k) rules when making retirement savings decisions for 2024:
The 2024 401(k) Contribution Limit
The contribution limit for 401(k)s, 403(b)s, most 457 plans and the federal government’s Thrift Savings Plan is $23,000 for 2024, up from $22,500 in 2023. You can take advantage of the higher limit by contributing up to $41.66 more per month to your 401(k) plan beginning in 2024.
“The main thing for employees to know at the beginning of the year is what their maximum allowable contribution is,” says Eric Maldonado, a certified financial planner for Aquila Wealth Advisors in San Luis Obispo, California.
“Then update your percentage or dollar-based employee deferrals to automatically fund your 401(k) each pay period,” he adds.
You can contribute to multiple traditional 401(k) and after-tax Roth 401(k) accounts in the same year, but your total 401(k) contributions to all accounts can’t exceed the annual 401(k) limit, says Rob DeLucas, a certified financial planner for Afton Advisors in Brentwood, Tennessee.
“A Roth 401(k) strategy actually allows you to get even more money into the plan because ultimately all of the money saved will belong to the participant without future deferred taxation,” he says.
Traditional 401(k) distributions are taxed when you withdraw money. If you deposit more than the contribution limit, make sure you withdraw the excess funds by around April 15 of the year after you make the contribution to avoid additional taxes and penalties.
[Mistakes to Avoid With a Roth IRA]
The 2024 401(k) Catch-Up Contribution Limit
Workers who are 50 and older are eligible to make catch-up contributions to 401(k) plans. The catch-up contribution limit will be $7,500 in 2024, which is the same as the 2023 limit. Older workers can defer paying income tax on as much as $30,500 in a 401(k) plan in 2023.
“If you have preset your savings limits at a fixed amount based on plan maximums, make sure you pay attention to your own age,” DeLucas says.
Once you turn 50, you can put in additional amounts, which can help you make up for previous years when your contribution limits were lower or you had less to put in savings. An older worker would need to save $2,541.60 per month, or $1,270.80 per bimonthly paycheck, to max out a 401(k) plan.
The 2024 401(k) Limit for Employer Contributions
Employers can make matching and nonmatching contributions to a 401(k) plan on behalf of employees, even if the worker has already maxed out the account. The overall contribution limit to 401(k) plans, including employer and employee deposits, is 100% of the participant’s compensation or $69,000, whichever is less. This is up from the 2023 limit of $66,000. For workers who are 50 and older, the overall contribution limit is $76,500, which includes catch-up contributions.
[Read: How to Maximize Your 401(k) Match.]
The 2024 401(k) Compensation Limit
Highly paid employees may be restricted in their ability to make 401(k) contributions. In 2024, a 401(k) plan can elect to stop salary deferrals once a participant’s compensation reaches $345,000 and can use only up to this amount when providing a 401(k) match. This is an increase from the $330,000 limit in 2023.
“The catch-up contribution is a great benefit for highly compensated employees,” says Danielle Seurkamp, a certified financial planner for Well Spent Wealth Planning in Cincinnati.
These individuals can still put in $7,500 in 2024. Since these workers tend to be in higher income tax brackets — like 35% or 37% — putting funds into a 401(k) could help them to reduce their tax bills by nearly 40 cents per dollar.
How to Qualify for the Saver’s Credit Using Your 401(k) Plan
Low- and moderate-income retirement savers can earn between $1,750 and $3,500 more and still qualify for the saver’s credit, which could be worth as much as $1,000 for individuals and $2,000 for couples.
The income limit for the saver’s credit will increase to $38,250 for individuals, $57,375 for heads of household and $76,500 for married couples in 2024.
This tax credit is worth between 10% and 50% of 401(k) contributions of up to $2,000 for individuals and $4,000 for couples, with the biggest credits going to the savers with the lowest incomes. The saver’s credit can be claimed in addition to the tax deduction for saving in a traditional 401(k) plan.
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New 401(k) Contribution Limits for 2024 originally appeared on usnews.com
