401(k) contribution limit projections for 2024: What plan sponsors may expect from the IRS

While the official announcement will come in October, a new prediction from Milliman has found that IRS contribution limits for retirement accounts will likely get only a modest increase for 2024, after seeing a relatively large increase for 2023.

The new report noted that for 2023, the IRS made a larger cost-of-living adjustment, due to inflation. That increase was $2,000; the increase for 2024 is predicted to be $500, creating a top contribution level of $23,000 for 401(k), 403(b) and 457 plans.

For defined contribution plans, the maximum annual addition will be between $68,000 and $69,000, the report said. The catch-up contribution limit for 2024 is estimated to remain at $7,500, the same level as in 2023.

Contribution levels reflect changes in inflation worries

The report noted that inflation has eased in the past year, although it is still higher than most years. “Inflation in the 12 months ending May 31, 2023, was 4.0% as reported by the U.S. Bureau of Labor Statistics on June 13, 2023,” the report said. “This is down significantly from the 8.2% annual change in CPI as of September 30, 2022, but still higher than the 2.5% average annual change over the past 10 and 20 years.”

The new report is based on calculations using the 2023 IRS limits and using the consumer price index (CPI) to predict future changes. When fiscal 2023 ends, the report noted, the IRS will use 12 months of reported CPI data to calculate the final limits.

Changes come with SECURE 2.0

The report also noted that the recently-passed SECURE 2.0 legislation will have an impact on defined contribution plans—with some changes being required and some optional. According to the report, the changes will include:

• Qualified student loan payments: Plan sponsors may elect to treat qualified student loan payments as elective deferrals eligible for employer matching contributions. An employee’s aggregate qualified student loan payments for the year may not exceed the the maximum annual amount an individual participant may defer under a 401(k), reduced by the employee’s elective deferrals for the year.
• Pension-linked emergency savings accounts (ESAs): Plan sponsors may add ESAs to their DC plans. Non-highly compensated employees may contribute to these accounts on a Roth basis, and the portion of the account attributable to participant contributions cannot exceed the lesser of $2,500 or such other amount designated by the plan sponsor. The $2,500 will be indexed for inflation.
• Roth catch-up contributions: Plans that offer catch-up contributions must require participants whose wages in the prior calendar year exceeded $145,000 (as defined in IRC section 3121[a]) to make catch-up contributions on a Roth basis. The $145,000 will be indexed for inflation.

HSA limits also get a boost

According to 401K Specialist, contribution limits for Health Savings Accounts (HSAs) will also increase in 2024. Using IRS data, Brian Anderson wrote for the website: “The annual contribution limit in 2024 for HSAs will jump to $4,150 for self-only coverage (up from $3,850 in 2023) and $8,300 for family coverage (up from $7,750 in 2023). The inflation-adjusted amounts mark the largest-ever increase to the amount of money that can contributed to the triple-tax advantaged accounts each year.”

Related: SECURE 2.0: Big changes to 401(k) catch-up contributions in 2024

In addition, the article noted that HSA members aged 55 and older can contribute an extra $1,000 starting in January, 2024. That would allow older married couples to save a maximum of $10,300 a year, up from $9,750 in 2023, Anderson wrote.