On November 1, 2023, the IRS released Notice 2023-75 and the accompanying IR-2023-203, announcing the cost-of-living adjustments for retirement plan contribution limits for the 2024 calendar year.^[1] The increases continue the trend of significant upward adjustments driven by the elevated inflation of recent years. For business owners, employees, and retirement plan advisors, these new limits create planning opportunities that deserve attention before year-end.

Key Numbers for 2024

The elective deferral limit for 401(k), 403(b), and most 457 plans increases to $23,000, up from $22,500 in 2023. The catch-up contribution limit for participants age 50 and older remains at $7,500, allowing these individuals to contribute up to $30,500 in total elective deferrals. The annual addition limit under IRC § 415(c)—the maximum total amount that can be contributed to a defined contribution plan on behalf of a single participant, including employer contributions—rises to $69,000 (up from $66,000), or $76,500 including catch-up contributions.^[2]

The IRA contribution limit increases to $7,000, up from $6,500. The catch-up contribution for IRA participants age 50 and older remains at $1,000. The income phase-out ranges for IRA deduction eligibility have also been adjusted upward, expanding access to deductible IRA contributions for moderate-income taxpayers who are covered by employer plans.

The Social Security taxable wage base for 2024 increases to $168,600, up from $160,200. This means that both employers and employees will pay Social Security tax (6.2 percent each) on an additional $8,400 of wages compared to 2023. For self-employed individuals, the combined 12.4 percent Social Security tax applies to the first $168,600 of self-employment income.

SIMPLE IRA and SEP Limits

For small business owners who use SIMPLE IRA plans, the employee contribution limit increases to $16,000 (up from $15,500), with a catch-up contribution of $3,500 for participants age 50 and older. The SEP IRA contribution limit—available to self-employed individuals and employers who contribute on behalf of employees—increases to $69,000, matching the § 415(c) annual addition limit. SEP contributions are limited to 25 percent of compensation, so an employee would need compensation of at least $276,000 to receive the maximum SEP contribution.

Planning Considerations for Business Owners

The increased contribution limits for 2024 present several planning opportunities for business owners. First, business owners who participate in their company's 401(k) plan should consider maximizing their elective deferrals at the new $23,000 limit (or $30,500 with catch-up contributions). For S corporation and C corporation owner-employees, these deferrals reduce taxable income dollar-for-dollar.

Second, employers should evaluate whether to increase their matching or profit-sharing contributions to take advantage of the higher § 415(c) limit. A business owner who is the only participant in a solo 401(k) can contribute the entire $69,000 (or $76,500 with catch-up), combining elective deferrals and employer profit-sharing contributions. This represents a substantial tax-deferred savings opportunity, particularly for high-income business owners.

Third, business owners who currently use SIMPLE IRAs should consider whether the time has come to convert to a 401(k) plan. The SIMPLE IRA's lower contribution limits ($16,000 vs. $23,000 for a 401(k)) and limited employer contribution options make it less attractive for business owners who want to maximize their retirement savings. The administrative complexity and cost of a 401(k) are higher, but the incremental tax savings from the higher contribution limits often justify the switch.

Fourth, the increased IRA contribution limits benefit business owners and employees who use IRAs as a supplement to employer plans. Roth IRA contributions—which are not deductible but provide tax-free growth and distributions—deserve particular attention given the uncertainty about future tax rates and the scheduled sunset of the Tax Cuts and Jobs Act provisions at the end of 2025.^[3]

Year-End Action Items

With the 2024 limits now known, business owners should take several steps before year-end. First, review the current plan document to ensure it permits the maximum contributions under the 2024 limits. Some plan documents may specify fixed dollar limits rather than referencing the statutory maximums, and these documents may need to be amended. Second, communicate the new limits to employees so they can adjust their deferral elections for 2024. Third, for business owners considering a change in plan type (for example, from a SIMPLE IRA to a 401(k)), the transition should be planned now, as some plan changes require advance notice to participants.

The continued upward adjustment of retirement plan contribution limits is good news for savers, and the compounding effect of maximizing contributions at these higher levels can be substantial over time. A business owner who contributes an additional $500 per year to a 401(k) for twenty years, earning a seven percent average annual return, will accumulate approximately $20,500 in additional retirement savings from that marginal increase alone. The power of these adjustments lies in their cumulative effect, making consistent, maximum contributions one of the most reliable wealth-building strategies available.^[4]