IRS Boosts 401(k) Contribution Limits for 2024

For those looking to grow their retirement savings, the IRS has just made things a bit easier. In response to inflation and to encourage Americans to save more for their golden years, the IRS recently increased the contribution limits for 401(k) plans and other similar retirement accounts.

For 2024, individuals can contribute up to $23,000 to their 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan (TSP), an increase from last year’s limit of $22,500. Those aged 50 and older, who are eligible for “catch-up contributions,” can contribute an additional $7,500, bringing their total contribution cap to $30,500.

The catch-up contribution limit that generally applies for employees aged 50 and over who participate in most 401(k), 403(b), governmental 457 plans, and the federal government’s Thrift Savings Plan remains $7,500 for 2025. Therefore, participants in those plans who are 50 and older generally can contribute up to $31,000 each year, starting in 2025. In addition, under a change made in SECURE 2.0, plan participants aged 60 to 63 can take advantage of the higher catch-up contribution limit. For 2025, this higher catch-up contribution limit is $11,250 instead of $7,500.

The increased limit is a welcome change, especially as more people focus on securing their financial futures amidst rising living costs. For those participating in workplace retirement plans, the higher limits provide an opportunity to shelter more income from taxes while building up retirement funds. Contributing to a 401(k) is also a chance to benefit from employer-matching programs, where companies match employee contributions up to a certain percentage, effectively boosting retirement savings without additional out-of-pocket expense.

Here are a few strategies to consider in light of the new limits:

• Maximize Contributions Early. By contributing consistently and early in the year, you can maximize the growth potential for your 401(k) funds. Even small increases in your monthly contribution can have a compounding effect over time.
• Take Advantage of Catch-Up Contributions. If you’re over 50, prioritize utilizing the catch-up contributions to get the most out of your tax-advantaged retirement accounts.
• Automate Savings. Many employers allow employees to set up automatic 401(k) contributions. By automating this process, you’re less likely to miss out on saving opportunities and are more likely to reach the annual limit.

These changes highlight the importance of re-evaluating your retirement strategy each year. The 401(k) increase represents a positive step for anyone aiming to build a strong, tax-advantaged retirement fund. Now is a great time to review your financial goals and ensure you’re making the most of these expanded opportunities to save.