What is the Maximum 401k Contribution for 2024? Catch-up Limits of 401K Plan

401k Plan 

The 401k plan is a retirement savings plan for employees who get a matching contribution from the employer. This plan has income tax benefits and multiple options to save money.

They are profit-sharing, stock bonus, pre-ERISA money purchase pension, or a rural cooperative plan, and deferred wages (elective deferrals). All of them are income tax deferrals at the time of saving and will only be taxed when savings are taken at the time of retirement.

401k  plan types are traditional 401(k) plans, safe harbor 401(k) plans, and SIMPLE 401(k) plans. Each plan has differing rules, so both employee and employer must know its benefits before choosing one. 

What is the Maximum 401k Contribution for 2024?

The IRS announced that the maximum 401k contribution for 2024 has been increased to $23,000 from the earlier $22,500. This limit increase will also be applicable for 403(b), most 457 plans, and federal government thrift savings plans. 

The Individual Retirement Arrangement IRA increased to $7,000, up from $6,500 for 2024. The annual limit for the “defined contribution plan” was increased from $265,000 to $275,000 in 2024. The limit of the 415(c) contribution was increased from $66,000 to $69,000. Below are some of the contribution limits and their changes for 2024. 

This limit change is a regular plan under the IRS Code Section 415 rule in which the dollar limit will be set based on the cost-of-living increase annually by the Secretary of the Treasury. This rule was also in the US Social Security Act, specifically in Section 215, which talks about the recomputation of the benefit. 

This recalibration of contribution limits annually acts like leeway for both employees and employers and sort of reduces the pressure on their expenses, which are disposable income in the case of employees and balance sheet expenses in the case of employers.

These act as mechanisms of balanced savings for both employees and employers.  For full details and about various other defined contribution plan limits that we missed out on, check out the notice numbered IRS Notice 2023-75.

401k Contribution Limits 2024 Catch-Up

 The 401k catchup is primarily meant for people who joined the service later and are trying to catch up with the rest of their colleagues to get the matching contribution percentage.

The age category for this is 50 and above at the end of the calendar year. This is voluntary and not mandatory. Below are the changes in the catch-up contribution for 2024.

Advantages of a 401k Plan 

 The advantages of a 401k plan are many. For starters, let's look at some of them.

• This plan offers automatic deductions from the paycheck.
• The 401k savings will offer both less tax and capital gains when one takes the money after retirement. 
• This plan offers the employee free money from the employers in the sense that employers will offer matching contributions but with a cooling-off period.
• This plan offers catch-up contributions to the employees while still being voluntary. 
• If one starts early in this scheme, people can save comfortably enough for the future. 
• One can easily switch to other plans without losing the contribution. 
• This plan has multiple avenues for savings. 

Will the 401k Plan be Nixed in Future? 

In November 2023, IBM announced plans to stop the 401K matching contribution to its employees every month and instead offer a one-time match for one year. This has created a lot of buzz about what it means for employees and employers.

This means matching contributions from the employee will be a thing of the past. There are both political and economic arguments to get rid of the 401k plan for good. And the first step in that direction is placing the retirement liability on the employees themselves, and we have spent a full six months in that system showcased by IBM.

In the future, more firms may enter that territory, which might affect the working-class population, who cannot afford the full contribution by themselves. We have to wait to see how arguments and policy contributions towards this will fare.