Plan Now to Take Advantage of Cost of Living Adjustments

Posted December 4, 2023

The end of the year is always busy—the holidays, the end of the school semester, and gatherings with family and friends to name a few. It’s also the time of year when many of us spend time reflecting on the previous 12 months, identifying shortcomings and successes, and creating promises of change.

When you think back on 2023, in terms of your retirement planning, did you save as much as you wanted? Did you maximize your retirement plan match? Did you leverage the catch-up amounts if you qualify?

January brings about a brand-new year and is a great time to implement any retirement planning changes you’d like to see. Take a minute to review the new cost of living adjustments and see how they might help you pursue your retirement goals. If you’re unsure, contact us, and we’ll gladly take a look with you.

On Nov. 1, 2023, the Internal Revenue Service issued Notice 2023-75, providing for the following 2024 cost of living dollar limits[1]:

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.

There’s no time like the present to update (or start!) your retirement planning goals. If you’re unsure how to get started or what changes to make, please contact us, and we’ll walk you through your options to maximize your retirement savings.

[1] Voya 2024 Cost of Living Adjustments Announced
Retirement plan withdrawals may be subject to taxation and penalties when withdrawn early.

Beau Beaullieu

As a veteran of the retirement plan industry and a partner in CoSource Financial Group, LLC, Beau specializes in the implementation, maintenance, and ongoing service of qualified retirement plans. His main role is to create a comprehensive retirement plan program that meets the fiduciary needs of business owners and their executives, as well as to provide ongoing educational services to their employees. For more than 20 years, Beau has worked with plan sponsors to coordinate appropriate retirement plan design and fiduciary governance protocol. He has improved the retirement readiness of thousands of employees by delivering the fundamentals of retirement planning, asset allocation, and the need for increased savings in a proven manner to employers and their plan participants. Beau is the leader of CoSource’s Fiduciary Task Team, which researches legislative trends that affect the fiduciary obligations of plan sponsors.