As plan sponsors prepare for the changes to the limits for their retirement plans and the effect on their labor costs and talent recruitment and retention efforts in 2024, we offer our 2024 Internal Revenue Service (IRS) limits forecast. This is our second annual forecast of the limits for tax-qualified defined benefit (DB) and defined contribution (DC) plans.
We published the limits for 2023 back in October 2022 following the announcements by the federal agencies of the annual cost-of-living adjustments, along with the corresponding limits for 2022 and 2021. In this forecast, we estimate the following IRS qualified retirement plan compensation and benefits limits:
- The maximum annual DB plan annuity payable as the unreduced amount at the plan’s normal retirement age.
- The maximum annual contribution (addition) to a DC plan by an employee (tax-deferred or Roth) and their employer (matching, profit-sharing, or other nonelective).
- The maximum annual amount an individual participant may defer under a §401(k), §403(b), or §457 plan.
- Catch-up contributions for participants aged 50 and older.
- The compensation limit used in the pension plan’s benefit and contribution formula(s).
- The compensation threshold for highly compensated employees (HCEs).
- The compensation threshold for key employees.
Impact of SECURE 2.0
SECURE 2.0 made changes to DC plans, some of which are required and some of which are optional. Certain changes will impact how the limits above apply or create new limits starting in 2024, as described below.
- Qualified student loan payments: Plan sponsors may elect to treat qualified student loan payments as elective deferrals eligible for employer matching contributions. An employee’s aggregate qualified student loan payments for the year may not exceed the limit in 3., above (or, if less, the employee’s Internal Revenue Code [IRC] section 415[c][3] compensation for the year), reduced by the employee’s elective deferrals for the year.
- Pension-linked emergency savings accounts (ESAs): Plan sponsors may add ESAs to their DC plans. Non-highly compensated employees may contribute to these accounts on a Roth basis, and the portion of the account attributable to participant contributions cannot exceed the lesser of $2,500 or such other amount designated by the plan sponsor. The $2,500 will be indexed for inflation.
- Roth catch-up contributions: Plans that offer catch-up contributions must require participants whose wages in the prior calendar year exceeded $145,000 (as defined in IRC section 3121[a]) to make catch-up contributions on a Roth basis. The $145,000 will be indexed for inflation.
Starting in 2025, higher catch-up limits will apply for plans that offer catch-up contributions for participants aged 60, 61, 62, or 63. The limit is the greater of $10,000 or 150% of the regular catch-up limit, as indexed for inflation.
Please visit our website to learn more about how SECURE 2.0 changes retirement savings. The site contains numerous articles and podcasts to help you navigate the new law.
How the 2024 IRS limits will be calculated
The 2024 IRS limits will be calculated using the 2023 limits and applying a factor that is based on the consumer price index (CPI) in federal fiscal year (FFY) 2023. FFY 2023 is defined as the 12-month period from October 1, 2022, to September 30, 2023.
After the close of FFY 2023, the IRS will use the 12 months of reported CPI to calculate the 2024 IRS limits. (The calculations are more complex than just multiplying the 2023 limits by the CPI, but those details are omitted here.) The 2024 IRS limits could be released by the IRS in October or November 2023. (The 2023 limits were announced on October 21, 2022.)
May 2023 forecast
Our limit forecast is projected using two assumption sets. One set is based on the current trailing 12 months of CPI and the second assumes that year-to-date CPI (since September 30, 2022) will continue to increase each month through September 30, 2023, by an estimated 25 basis points (3.0% annual).
Historical rolling 12-month changes in CPI as of each September 30 through 2022, and through May 31 for the current FFY, are shown in Figure 1.
Figure 1: Historical 12-month percentage change each September 30, Consumer Price Index, all items, not seasonally adjusted
Source: U.S. Bureau of Labor Statistics.
Inflation in the 12 months ending May 31, 2023, was 4.0% as reported by the U.S. Bureau of Labor Statistics (BLS) on June 13, 2023. This is down significantly from the 8.2% annual change in CPI as of September 30, 2022, but still higher than the 2.5% average annual change over the past 10 and 20 years.
Since September 30, 2022, CPI has increased about 2.5%. Projecting monthly increases of 0.25% through September 2023 results in an annual increase of 3.5% for our eight-month actual, four-month forecast.
BLS is expected to release the June CPI results on July 12, 2023, at which time this forecast will be updated.
Please contact your Milliman consultant for details and questions about how these limits apply to your retirement plan(s).
Figure 2: 2024 IRS limits forecast using actual FFY 2023 CPI as of May 31, 2023
| 2023 IRS limits | Estimated 2024 IRS limits | Dollar increases from 2023 limit | |||
| Category of annual IRS limits | Actual 12-month trailing CPI as of 5/31/2023 | 8-month actual 5/31/2023, 4 months forecast to 9/30/2023 | Actual 12- month trailing CPI as of 5/31/2023 | 8-month actual 5/31/2023, 4 months forecast to 9/30/2023 | |
| Maximum annual annuity pension for DB plans | $265,000 | $275,000 | $275,000 | $10,000 | $10,000 |
| Maximum annual addition for DC plans | $66,000 | $69,000 | $68,000 | $3,000 | $2,000 |
| Maximum §401(k), §403(b), §457 deferral for DC plans | $22,500 | $23,000 | $23,000 | $500 | $500 |
| Catch-up contribution limit for DC plans | $7,500 | $7,500 | $7,500 | $0 | $0 |
| Compensation Limit | $330,000 | $345,000 | $340,000 | $15,000 | $10,000 |
| HCE dollar amount | $150,000 | $155,000 | $155,000 | $5,000 | $5,000 |
| Key Employee / Officer Compensation | $215,000 | $225,000 | $220,000 | $10,000 | $5,000 |
| SECURE 2.0 (New) | Actual 2024 limit | ||||
|---|---|---|---|---|---|
| Contribution limit to ESAs for DC plans | N/A | $2,500 | |||
| Prior year wage threshold triggering Roth catch-up contributions to DC plans | N/A | $145,000 | |||
Source: https://www.bls.gov/cpi/ (retrieved June 13, 2023).
Actual 12-month trailing CPI-U of 4.0% ending May 31, 2023.
Actual 8-month CPI-U ending May 31, 2023, and 0.25% per month for June through September 2023.