On November 1, 2023, via Notice 2023-75, the IRS announced the effect of cost-of-living adjustments on certain 2024 dollar limits for various retirement plans (e.g., 401(k) plans and 403(b) plans). As expected, several limits will increase for 2024 because of inflation, as the increase in the cost-of-living index met statutory thresholds that triggered their adjustment for 2024. Here are the most notable figures for defined contribution plans:
- Elective Deferrals: The elective deferral contribution limit will increase from $22,500 to $23,000, not including catch-up contributions. See Internal RevenueCode (“Code”) section 402(g).
- Catch-Up Contributions: This limit for participants who will be at least 50 years of age at any point during 2024 will remain at $7,500. SeeCode section 414(v).
- Compensation: The annual limit on compensation that can be considered for purposes of contributions and deductions will increase from $330,000 to $345,000. SeeCode section 401(a)(17), which relates to contributions, and Code section 404(l), relating to deductions.
- Highly Compensated Employees: The compensation threshold for determining who is a highly compensated employee will increase from $150,000 to $155,000. (Note that a participant’s ownership of the plan sponsor and/or any related organization(s), as well as certain interests owned by a participant’s family, can also affect this determination.) SeeCode section 414(q).
- Annual Additions: The limit on the combination of participant contributions, employer contributions, and forfeiture allocations credited to a participant’s account will increase from $66,000 to $69,000. SeeCode section 415(c).
- Key Employees: The compensation amount for determining which officers are key employees (which is important for top-heavy plan purposes) will increase from $215,000 to $220,000. SeeCode section 416(i).
In addition, the Social Security Administration has announced that the Social Security taxable wage base will increase from $160,200 to $168,600 for 2024.
Individuals who administer retirement plans (e.g., Human Resources, Payroll, service providers) should start planning to implement the 2024 limits. This may involve steps such as drafting communications to employees, revising plan administration forms and manuals, and revising payroll systems.