Employees will be able to sock away $23,000 in pre-tax contributions to their 401(k) savings accounts next year, a slight increase from the previous year, the Internal Revenue Service recently announced.
The 2.2% increase in the contribution limit for 2024 comes as high inflation continues, and employers now list the high cost of living as their top financial wellness concern for their employees. Thanks to the higher limit, up $500 from $22,500 in 2023, employees can lower their annual income tax payments a little further by setting aside more pre-tax money into their 401(k).
The new contribution limit, which takes effect Jan. 1, applies to 401(k) plans along with 403(b) plans, most 457 plans and the Thrift Savings Plan for federal employees.
See also: 2 key strategies to boost employee retirement savings—now
IRS regulators were not as generous, however, with the 401(k) catch-up contribution limit for employees age 50 or older. The catch-up contribution will not change from its 2023 level of $7,500 for 401(k), 403(b), most 457 plans and the Thrift Savings Plan. Still, employees 50 or older can contribute up to $30,500 in 2024.
For employees 50 years and older who participate in the SIMPLE plans, the catch-up contribution limit remains at $3,500 for 2024, according to the IRS.
Move with 401(k) limits should continue trend in retirement savings
The recent move by the IRS, though less than the nearly 10% limit increase last year, will help employees continue their upward momentum in increasing their savings rate, experts say. In the second quarter, for example, 401(k) balances rose 4% over the previous three months.
At the time, Mike Shamrell, vice president of thought leadership at Fidelity Investments, told HRE that more employers view financial wellbeing as an “integral part of total wellbeing” and are addressing it in holistic wellness strategies to encourage healthier, more productive workforces.
Earlier this year, the IRS raised the annual contribution limit for Health Savings Accounts by more than 7%—a record increase.
The HSA adjustments for individuals jumped 7.8% for 2024 compared to the previous year and increased 7.1% for family contributions, representing a $300 and $550 limit increase, respectively.
The limits for 2024 are $8,300 for families and $4,150 for individuals, according to the IRS.
Related: IRS raises HSA limit for 2024 with record increase
The IRS is expected to release 2024 limits on Flexible Spending Accounts soon.
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