If your employer offers a 401(k), you’ll be able to save more money for retirement in the new year. The IRS recently announced the new limits for 401(k)s and other tax-advantaged retirement accounts.
The 2024 401(k) contribution limit is $23,000, a $500 increase from 2023’s limit. If you’re 50 or older, you can stash an additional $7,500 in your 401(k).
Read on to learn more about the 401(k) contribution limits for 2024, as well as some new retirement savings rules that should be on your radar.
2023 and 2024 contribution limits for 401(k)s
The IRS adjusts the limits for how much you can save in a tax-advantaged retirement account each year for inflation. It typically does so in $500 increments. As with 401(k) limits, individual retirement account (IRA) limits will be $500 higher in 2024.
There are two main types of 401(k)s: traditional 401(k)s, where you contribute pre-tax money and pay taxes on withdrawals, and Roth 401(k)s, where you’ve already paid taxes on the contributions and you get tax-free withdrawals in retirement. The contribution limits are the same for both types of 401(k)s.
These limits also apply to several other types of retirement accounts, including:
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403(b) plans, which are offered by public schools and some 503(c)(3) tax-exempt organizations
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Most 457 plans, which are available to some state and local government employees, as well as employees of some tax-exempt non-governmental entities
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The Thrift Savings Plan for federal government employees and uniformed service members.
Many companies match a portion of their employees’ contributions to 401(k)s and other retirement accounts. If your employer provides a match, their contribution won’t count toward the amount you’re allowed to contribute.
However, there are also limits on combined employer and employee contributions. In 2024, you and your employer’s contributions to your 401(k) can’t be more than $69,000, up from $66,000 in 2023. The $7,500 catch-up contribution that you’re allowed to make if you’re at least 50 in both 2023 and 2024 doesn’t count toward these limits.
Do 401(k)s have income limits?
There are no 401(k) income limits; you can contribute to a 401(k) no matter how high your income. But the IRS conducts what’s called non-discrimination tests each year to ensure that a retirement plan doesn’t disproportionately benefit highly compensated employees. The IRS will consider you a highly compensated employee if:
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You own more than 5% of the business at any time during the year or the previous year, regardless of how much you earned, OR
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You earned more than $150,000 in the previous year for 2023 or $155,000 in the previous year for 2024, and if your employer chooses to make what’s known as a top-paid election, you rank in the top 20% of employees for compensation.
If you’re considered a highly compensated employee, you can still contribute to your 401(k) up to the limits. But if your company’s plan fails discrimination testing for a year, it may need to return some of your contributions as a corrective measure.
What is the deadline to contribute to a 401(k)?
You have until the end of the calendar year to make 401(k) contributions, so the deadline for 2023 contributions is Dec. 31, 2023. Any contributions you make after that will count toward the 2024 contribution limits.
Can you contribute to a 401(k) and an IRA?
Yes. You can contribute to both a 401(k) and an IRA as long as you’re eligible for each account and stick to the contribution limits. However, if you or your spouse has a 401(k) or any other workplace retirement account, you may be ineligible to deduct contributions to a traditional IRA, or you may only be allowed to deduct a partial amount. Also, keep in mind that income limits apply to Roth IRAs.
Other 401(k) rules that are changing in 2024
There are a few new 401(k) rules that will take effect in 2024, most of which are part of the Secure Act 2.0 that President Biden signed into law in late 2022. Here are the most important changes that could affect your retirement planning:
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Roth 401(k)s will no longer be subject to RMDs. Required minimum distributions (RMDs) are mandatory distributions you have to take the year you turn 73 (previously 72) from certain retirement accounts. But beginning in 2024, Roth 401(k)s will no longer have RMDs. Traditional 401(k)s will still be subject to RMDs.
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Student loan payments can qualify for a 401(k) match. You may find it difficult to save for retirement if you’re bogged down by student loans. That can mean missing out on free money from your employer’s 401(k) match. Starting in 2024, though, your employer can treat qualifying student loan payments as 401(k) contributions for the purpose of determining your match. For example, suppose your employer matches 50% of your 401(k)…
Read More: 401(k) contribution limits for 2023 and 2024