IRS Raises 401(k) Contribution Limits for 2024 by $500

• On Nov., 1, 2023, the IRS boosted annual contribution limits for 2024 for 401(k), 403(b), and most 457 plans.
• Plan participants can contribute up to $23,000 for 2024, which is up from $22,500 for 2023.
• This is a good time to consider adding a retirement savings program to your benefits menu, if your business doesn't yet have one.

Annual savings ceiling boosted $500

Employees using a workplace-sponsored 401(k) plan, a 403(b) plan, or most 457 plans — available for government and certain non-government employers — will be able to contribute an additional $500 per year in 2024. The Internal Revenue Service (IRS) raised the annual contribution limits for 2024 to $23,000, which amounts to a cost of living adjustment and is an increase from $22,500 in 2023.

For employees 50 and older, the catch-up contribution limit increases to $7,500 for workplace plans. When pooled together, a worker who is 50 and older can save as much as $30,500 in a 401(k) plan — even if the individual doesn’t turn 50 until Dec. 31, 2024.  

Time to consider offering a retirement plan

While the size of the increase to the 401(k) plan contribution limit is relatively modest, the boost signals an opportune time to consider adding a retirement savings program to your benefits menu if you don't already have one.

Although the savings rate among Americans today is low — a little more than half of all workers (52 percent) participate in a workplace retirement plan, according to the Bureau of Labor Statistics’ National Compensation Survey for 2022, sparking more than a dozen states to begin implementing state-sponsored retirement programs — increases in contribution limits could lead to an increase in the need for a savings plan. 

The benefits of establishing a retirement savings plan are both short and long term for a business and its employees. A 401(k) plan can attract and retain talent — similar to competitive salaries — plus enhance employees’ retirement-readiness, and deliver benefits such as tax savings for the business and elevated engagement by employees.

Small-business owners should also use this time to develop their own succession plan, including funding your own retirement.  As you consider implementing a retirement savings plan for employees, also consider your retirement. You also might gain access to better plans for yourself.

Paychex offers retirement plan options designed to help businesses of all sizes that are considering starting a 401(k), or considering switching their current retirement plan.