The IRS recently released its annual notice, Notice 2023-75, outlining adjusted dollar limits for contributions and benefits under qualified retirement plans, including 401(k) plans. The new limits will go into effect on January 1, 2024.
Under the Internal Revenue Code, these limits are subject to annual adjustment to reflect increases in the most recent cost-of-living index. Most years, including this one, certain limits are increased while other limits may remain unchanged. Overall, the changes for 2024 are lesser than the parallel changes that were made in 2023 (see our blog), due to reduced inflation from what marked that near-record year.
401(k) Adjusted Limits That Increase in 2024
The most frequently encountered dollar limits for most 401(k) plans that will increase in 2024 from the parallel dollar limits that are in effect for 2023 are as follows:
- Employee Elective Deferral Contributions. The dollar limit increased from $22,500 to $23,000.
- Plan Compensation. The maximum amount of compensation that may be considered for qualified plan (including 401(k) plan) purposes increased from $330,000 to $345,000.
- Annual Additions. The maximum contribution limit on “annual additions,” which considers both employer and employee contributions under defined contribution plans (including 401(k) plans), increased from $66,000 to $69,000.
- “Highly Compensated Employees.” The dollar limit threshold for 401(k) plan nondiscrimination testing purposes increased from $150,000 to $155,000.
- “Key Employees.” The dollar limit threshold for purposes of determining whether a 401(k) plan is “top-heavy” (another type of nondiscrimination test) increased from $215,000 to $220,000.
More Limits to Note
“Catch-Up” Contributions. Notably, the maximum dollar limit for “catch-up” 401(k) contributions, which applies to employees who reach age 50 or older at any time during the calendar year, remains unchanged from the parallel dollar amount in effect for 2023, at $7,500 in 2024.
Social Security Taxable Wage Base for 2024: In a separate release , the U.S. Social Security Administration (“SSA”) announced on October 12, 2023 that the Social Security taxable wage base will increase from $160,200 to $168,600. Once an employee reaches this annual limit, his or her additional wages are no longer subject to Social Security withholding, though they can still count as “compensation” for retirement plan purposes, up to the annual compensation cap ($345,000 in 2024), subject to plan provisions.
Make sure your systems are timely updated to reflect the 2024 changes, and to inform employees about the new 2024 dollar limits in all relevant communications (for example, year-end open enrollment materials).
Summary plan descriptions (“SPDs”), plan guidelines and administrative procedures, and similar resources also will need to be reviewed and revised. Most plan documents themselves do not require formal amendments to reflect the adjusted limits. If you are in doubt, please ask your ERISA attorney or advisor to review your plan document for any needed changes.