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Strategies to Take Advantage of the 2024 Cost of Living Adjustments

Strategies to Take Advantage of the 2024 Cost of Living Adjustments

December 01, 2023

As we dive into the holiday season and gear up for quality time with loved ones, it's also the perfect opportunity to reflect on the past year. Amidst all the holiday parties and family gatherings, let's not forget about our retirement plans.

With January quickly approaching and the promise of a brand-new year, it's an excellent time to make those retirement planning tweaks you've been thinking about. Let's discuss all the possibilities that the updated cost of living adjustments for 2024 might bring to your retirement goals.

The IRS recently rolled out Notice 2023-75 on November 1, 2023, unveiling the latest dollar limits for the upcoming year. These adjustments could be just what you need to give your retirement plans a boost. 

Annual Limitations. The annual benefit for defined contribution plans increases from $265,000 in 2023 to $275,000 in 2024. The annual contribution for defined contribution plans increases from $66,000 in 2023 to $69,000 in 2024. With the $7,500 catch-up for individuals aged 50 or over, the annual contribution becomes $76,500 in 2024. 

Testing Facts. The annual maximum compensation limit increases from $330,000 in 2023 to $345,000 in 2024, while the highly compensated employee compensation threshold increases from $150,000 in 2023 to $155,000 in 2024. The Social Security taxable wage base increases from $160,200 in 2023 to $168,600 in 2024. 

401(k)/403(b)/457/SARSEP Plans. The employee deferral contribution limit increases from $22,500 in 2023 to $23,000 in 2024, while the employee catch-up contribution limit for individuals aged 50 or over remains flat at $7,500. 

SIMPLE Plans. The employee SIMPLE IRA/401(k) contribution limit increases from $15,500 in 2023 to $16,000 in 2024, while the contribution limit for individuals aged 50 or over remains flat at $3,500. 

SEP Plans. The maximum compensation amount increases from $330,000 in 2023 to $345,000 in 2024, while the minimum compensation amount remains flat at $750. 

IRA and Roth Contributions. Contributions to IRAs and Roth IRAs increases from $6,500 in 2023 to $7,000 in 2024, while the catch-up contribution limit for individuals aged 50 or over remains flat at $1,000. 

Highly Compensated Employee Definition. The definition of a highly compensated employee is (1) greater than 5% owner, (2) lineal ascendant/descendant of the greater than 5% owner, (3) an employee with compensation greater than $155,000 in 2024 or (4) a top paid group (top 20% of employees by compensation upon election of a plan sponsor).  

Key Employee Definition. The definition of a key employee is (1) greater than 5% owner, (2) 1% owners with at least $155,000 in compensation, (3) lineal ascendant/descendant of the greater than 5% owner or (4) officer with compensation greater than $220,000 in 2024. 

Feeling a bit uncertain about how these changes might impact you? Reach out to us at Anderman Wealth Partners, and we'll be more than happy to walk you through it. Your future self will thank you for taking this proactive step toward a brighter financial future. Cheers to a prosperous New Year!