401(k) Contribution Limits Increase: Maximize Your 2024 Savings

The IRS has officially raised the stakes for retirement savers in 2024. If you are looking to lower your taxable income while building a robust nest egg, these new adjustments offer a significant opportunity. Understanding the specific dollar amounts and taking action early in the year can help you compound your wealth faster.

The New 2024 IRS Contribution Limits

The IRS adjusts contribution limits annually based on cost-of-living data. For 2024, they have increased the amount you can contribute to your 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan.

Standard Employee Deferral Limit

For employees under the age of 50, the contribution limit has increased to $23,000. This is a $500 increase from the 2023 limit of $22,500. This number refers strictly to the money you elect to have withheld from your paycheck. It does not include any matching funds provided by your employer.

Catch-Up Contributions for Age 50+

If you are age 50 or older, you are allowed to make additional “catch-up” contributions. For 2024, the catch-up contribution limit remains at $7,500.

When you combine the standard limit with the catch-up provision, workers aged 50 and older can contribute a total of $30,500 to their workplace retirement plans in 2024.

The Overall Limit (Employee + Employer)

There is also a ceiling on the total amount of money that can go into a 401(k) account from all sources. This includes your elective deferrals, your employer’s matching contributions, and any profit-sharing contributions.

For 2024, the total annual limit for defined contribution plans has increased to $69,000 (up from $66,000 in 2023). If you are 50 or older, the total limit is $76,500 when you include the catch-up contribution.

Why You Should Increase Your Contributions Now

It is easy to set your contribution rate once and forget about it. However, ignoring these increases means leaving tax-advantaged space unused.

Tax Benefits

Every dollar you contribute to a traditional 401(k) lowers your taxable income for the year. If you are in the 24% federal tax bracket, contributing the full $23,000 reduces your taxable income significantly. You would defer paying taxes on that $23,000 until you withdraw the funds in retirement.

Alternatively, if your company offers a Roth 401(k), you pay taxes now, but your money grows tax-free. Increasing your contributions here means more tax-free income later.

The Power of Compound Interest

An extra $500 invested in 2024 might not seem like a life-changing amount today. However, over 20 or 30 years, that additional principal can grow substantially. If the market returns an average of 7% annually, that single $500 increase could grow to nearly $4,000 over 30 years. When you consistently maximize the new limits year over year, the growth accelerates.

Strategic Moves for High Earners

High-income earners face specific considerations regarding the SECURE 2.0 Act and IRS testing.

Highly Compensated Employees (HCE)

If you earn more than $155,000 in 2024 (based on 2023 look-back data), you might be classified as a Highly Compensated Employee. In some companies, HCEs are restricted from maximizing their contributions if the plan fails non-discrimination testing. This happens if lower-paid employees do not contribute enough to the plan. If you fall into this category, check with your HR department early to see if your plan has a “safe harbor” provision which bypasses this testing.

Delayed Rule for Roth Catch-Ups

A provision in the SECURE 2.0 Act was set to require high earners (those making over $145,000) to make all catch-up contributions into a Roth account. This would have eliminated the upfront tax break for those catch-up dollars. However, the IRS announced a two-year administrative transition period. As of now, high earners can still make catch-up contributions on a pre-tax basis through 2025. This rule will not be enforced until 2026, giving you a window to continue reducing your current taxable income.

How to Adjust Your Payroll Contributions

Adjusting your 401(k) is usually a self-service task done through your benefits portal or payroll provider. Common providers include Fidelity, Vanguard, ADP, Paychex, and Empower.

Follow these steps to ensure you hit the $23,000 target:

  1. Calculate the Pay Period Deduction: Divide the limit ($23,000) by the number of pay periods you have in the year.
    • 26 Pay Periods (Bi-weekly): Contribute approximately $885 per paycheck.
    • 24 Pay Periods (Semi-monthly): Contribute approximately $959 per paycheck.
    • 12 Pay Periods (Monthly): Contribute approximately $1,917 per paycheck.
  2. Percentage vs. Fixed Dollar: Some portals allow you to set a fixed dollar amount, while others require a percentage of your salary. If you must use a percentage, divide your target contribution ($23,000) by your gross annual salary. For example, if you earn $100,000, you should set your contribution rate to 23%.
  3. Check for Bonus Settings: Many payroll systems have separate elections for regular pay and bonus pay. Ensure you adjust both if you want to use your annual bonus to front-load your retirement account.
  4. Verify the Employer Match: Always contribute at least enough to get the full employer match. This is effectively a guaranteed 100% return on your investment (up to the match cap). Common matches are 50% of the first 6% you contribute, or dollar-for-dollar up to 3% or 4%.

What If You Have Multiple Jobs?

The $23,000 limit applies to you as an individual, not per account. If you have two jobs that both offer 401(k) plans, the total you contribute to both combined cannot exceed $23,000.

It is your responsibility to track this. Your employers will not know what you contributed at a different company. If you over-contribute, you must request a “return of excess contribution” from one of the plan administrators before the tax filing deadline (usually April 15 of the following year). Failure to correct this results in the excess amount being taxed twice.

However, the $69,000 total limit (employer + employee) is generally per employer (unrelated employers). If you have a day job and a separate side business with a Solo 401(k), you may be able to contribute more in total employer profit-sharing contributions across the distinct plans, though the employee deferral limit ($23,000) remains shared.

Frequently Asked Questions

Does the employer match count toward the $23,000 limit? No. The $23,000 limit applies only to the money deducted from your paycheck. Employer matching funds count toward the higher overall limit of $69,000.

When is the deadline to contribute for the 2024 tax year? For 401(k) plans, contributions must be made by December 31, 2024. This is different from IRAs, which allow you to contribute until the tax filing deadline in April 2025.

Can I contribute to both a 401(k) and an IRA in 2024? Yes. You can contribute up to $23,000 to your 401(k) and an additional $7,000 to an IRA ($8,000 if 50+). However, your ability to deduct the Traditional IRA contribution on your taxes may be limited by your income level since you have a workplace retirement plan.

What happens if I start a new job in the middle of the year? You must subtract whatever you contributed at your previous job from the $23,000 limit to determine how much you can contribute at your new job. You should provide your new payroll department with the exact amount remaining to ensure they stop deductions once you hit the cap.