Annual Compensation Limit 2024: What You Need to Know
Annual Compensation Limit 2024: What You Need to Know
Effective January 1, 2024, the annual compensation limit for most highly compensated employees (HCEs) under employer-sponsored retirement plans has been adjusted for inflation. This limit is used to determine how much income can be deferred into certain retirement accounts, such as 401(k) plans and 403(b) plans.
2023 | 2024
---|---|
$330,000 | $360,000
For 2024, the Social Security wage base limit, which determines the maximum amount of wages subject to Social Security taxes, has also been adjusted to $160,200.
2023 | 2024
---|---|
$160,200 | $159,600
Success Stories
- A 401(k) plan participant with an annual salary of $360,000 can contribute up to $22,500 to their plan in 2024, up from $20,500 in 2023.
- A 403(b) plan participant with an annual salary of $360,000 can contribute up to $23,500 to their plan in 2024, up from $22,500 in 2023.
- A self-employed individual with net income of $360,000 can contribute up to $65,500 to their Solo 401(k) plan in 2024, up from $61,000 in 2023.
Effective Strategies, Tips and Tricks
- If you are a highly compensated employee, consider contributing as much as possible to your retirement plan to maximize your tax savings.
- If you are self-employed, a Solo 401(k) plan can be a great way to save for retirement and reduce your tax liability.
- If you have any questions about the annual compensation limit 2024, consult with a financial advisor or tax professional.
Common Mistakes to Avoid
- Do not exceed the annual compensation limit, as this could result in excess contributions and penalties.
- Do not withdraw funds from your retirement plan before retirement, as this could result in taxes and penalties.
- Do not forget to consider the impact of other retirement savings limits, such as the IRA contribution limit.
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