14 Nov 2023
Up, Up, and Away! Inflation-Adjusted 401(k) Maximum Salary Deferral at $23,000 for 2024
The Internal Revenue Service recently announced its 2024 inflation adjustments to many retirement plan limits. For example, the amount individuals can contribute to their 401(k), 403(b), and most 457 plans will increase to $23,000 in 2024, up $500 from the 2023 max of $22,500. If you’re age 50 and older the catch-up contribution remains at $7,500, but it adds to more than $30,000 that can be saved annually for those eligible individuals who can—and do. That’s so much more than the maximum IRA contribution limit. That amount increases from $6,500 in 2023 to $7,000 in 2024, with a catch-up of $1,000 for those age 50 or older at year end. By some reports, there were 175,000 defined benefit plans in the private sector in the early 1980s. That number is down below 50,000, with many being frozen. So, it’s important that employees save for their retirement. Reminding them of the limits can help.
Related Content
- 401(k) Plans: Understanding the Rules
See how the 401(k) plan (really a profit sharing or stock bonus plan with a cash or deferred arrangement feature) is the most popular type of employee savings plan. As of September 30, 2022, there were more than 650,000 401(k) plans in the United States, with more than 60 million active participants. A 401(k) plan’s features can allow employee savings in the form of pre-tax, Roth 401(k), and/or traditional after tax dollars. Employers can supplement with employer matching contributions and/or non-elective contributions. Even an employee stock ownership plan can be added to the overall plan. Explore by reading this practice note.
- 403(b) Plan Design and Compliance
Compare 401(k) to 403(b) plans. A 403(b) plan is a type of retirement plan providing for deferred taxation on certain contributions and earnings made by specific kinds of tax-exempt organizations (primarily, public schools, and 501(c)(3) tax-exempt organizations) for their employees and by certain ministers. For the participant, a 403(b) plan appears much like a 401(k) plan in that it provides for an individual account for each participant. Some, not all, of the requirements that apply to 401(k) and other qualified retirement plans apply to 403(b) plans. Learn more with this practice note. - True-up Clause for 401(k) Plan (Matching Contributions)
See how a true-up clause in a 401(k) or a 403(b) plan can help a new plan entrant or a late saver to catch up on lost contributions. When matching contributions are made on a payroll or monthly basis, 401(k) plans can allow participants to miss out on the plan's maximum employer match. Having a true-up clause in the formal plan document can help the employee make up for lost matching contributions when the employee’s contributions are annualized, at year end. The employee simply has to save at a rate greater than the maximum matching contribution to make up for lost dollars.
DID YOU KNOW? Practical Guidance Tax has added two new topics to the State Law Comparison Tool: (1) Corporate Income Tax Rates and (2) Personal Income Tax Rates. California and Hawaii have the highest personal income tax rates, at 13.3% and 11%, respectively.
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