Brett Arends's ROI: Here’s how much 401(k) contribution limits are likely to rise next year


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It’s not time to break out the champagne.

The tax-deferred amount you will be able to contribute to your 401(k) plan in 2024 is likely to rise by just $500, or 2.2%, according to a forecast from Mercer, a pension consulting company.

The limit on contributions will go from $22,500 to $23,000 next year, the company predicts, and says the same will be true for 403(b) and 457 plans, the 401(k) equivalents for nonprofits and the public sector.

And, Mercer says, there will be no hike in the additional $7,500 in catch-up contributions allowed for those over 50 — meaning that for workers in their 50s and 60s, the total tax-deferred contribution cap will rise from $30,000 to $30,500, or 1.7%.

This estimate comes at a time when the official inflation figure is 3.2%, with the Federal Reserve struggling to bring it back down to a target rate of 2%.

There is an increase planned for the catch-up limit starting in 2025, but only for those age 60 to 63. Their limit will go from $7,500 to $10,000.

Mercer’s forecasts of how much contribution thresholds will increase by are based on the Internal Revenue Service’s own methodology, including its cost-of-living adjustments and rounding methods, and on the relevant inflation figure, the consumer-price index for urban consumers, or VPI-U.

But these are only estimates: We won’t know the actual figures until October. To calculate COLAs, the IRS will compare the CPI data for July, August and September with the same figures from a year ago. Social Security does the same.

To put next year’s likely contribution-limit increases in context, Vanguard reports that the median 401(k) balance across its 4.9 million customers is less than $27,500 — or a little more than one year’s maximum contribution for workers under age 50. 

The median age of plan participants in the survey was 43, Vanguard says.

If only those workers had pensions to fall back on in their old age. But only 15% of private-sector workers have a traditional pension plan, known as a defined-benefit plan. Among government workers, however, that figure is 86%.

It’s a lucky thing Social Security’s finances are in such great shape!

Mercer’s predictions for next year’s 401(k) limits come just as the IRS announces some sweet news pertaining to so-called high earners, meaning those earning more than around $150,000 a year. They can continue to deduct their catch-up contributions from their taxable income for the next two years, the agency has ruled.

Related: IRS says high earners can wait until 2026 to put catch-up contributions into a Roth. Why not start now?

A clause in the Secure Act 2.0 retirement act passed by Congress last year says that high earners must make those extra contributions with after-tax dollars. But in response to complaints, including from plan providers, the IRS now says it will implement that rule in 2026, not in 2024 as previously planned.

In other words, the latest 401(k) news is much better for high earners than for everybody else.

Also read: I’m about to retire and want to raid my 401(k) to buy a home: ‘Am I out of my mind?’

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Alexandra Williams
Alexandra Williams
Alexandra Williams is a writer and editor. Angeles. She writes about politics, art, and culture for LinkDaddy News.

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