Official IRS Deferred Compensation Limits for 2024

Deferred compensation represents an arrangement where an employee earns income in one period, but the actual payment of that income is postponed to a future date. The Internal Revenue Service (IRS) establishes annual limits on the amounts that can be contributed to these plans.

These contribution ceilings are subject to cost-of-living adjustments announced by the IRS each year to account for inflation. This article provides a detailed breakdown of the official IRS contribution limits for various deferred compensation plans for the 2024 calendar year, explaining the rules that govern them.

2024 Employee Elective Deferral Limits

For 2024, the limit on employee elective deferrals allows an individual to contribute up to $23,000 of their salary to their retirement account. This ceiling, outlined in Internal Revenue Code Section 402, applies to a range of popular retirement plans, including 401(k)s, 403(b)s, most 457 plans, and the federal government’s Thrift Savings Plan (TSP). This limit represents the maximum amount an employee can direct from their own pay into the plan, whether as pre-tax or Roth contributions.

The tax code allows for additional contributions for those who have reached a certain age. For 2024, individuals who are age 50 or over can contribute an additional $7,500. This catch-up provision raises the total possible employee contribution to $30,500 for the year for those eligible.

Certain types of plans offer unique catch-up contribution opportunities. For example, some 403(b) plans allow a special catch-up for employees with 15 or more years of service, permitting up to an additional $3,000 per year, subject to a $15,000 lifetime maximum. Governmental 457(b) plans may offer a special pre-retirement catch-up in the three years prior to the participant’s normal retirement age, which allows contributions of up to twice the normal elective deferral limit, reaching $46,000 in 2024.

Contribution Limits for Other Plan Types

Savings Incentive Match Plans for Employees, or SIMPLE plans, have different limits for their IRA and 401(k) forms. For 2024, an employee participating in a SIMPLE plan can contribute up to $16,000.

These plans also permit catch-up contributions for participants who are age 50 or older. The catch-up amount for SIMPLE plans in 2024 is $3,500. This allows an eligible employee to contribute a total of $19,500 to a SIMPLE IRA or SIMPLE 401(k) in 2024.

Simplified Employee Pension, or SEP IRA, plans are funded exclusively by employer contributions. Employees cannot make elective deferrals into these plans. For 2024, employer contributions are limited to the lesser of two amounts: 25% of the employee’s compensation or $69,000. Because these plans do not involve employee contributions, there are no associated catch-up provisions for employees.

Overall Contribution Limits for Defined Contribution Plans

Separate from employee contribution limits, the IRS imposes an overall cap on total additions to a defined contribution plan account each year. This limit is governed by Internal Revenue Code Section 415.

For the 2024 plan year, the total annual additions limit for a defined contribution plan is $69,000. This limit does not include any age-based catch-up contributions made by the employee.

The overall limit includes the employee’s elective deferrals, any employer matching contributions, and other employer inputs such as profit-sharing contributions or forfeitures. For instance, if a 45-year-old employee contributes the maximum $23,000 to their 401(k) in 2024, their employer could still contribute up to an additional $46,000 through matches and profit sharing before reaching the $69,000 ceiling.

Key Definitions Impacting Contribution Limits

The definition of “compensation” is important, as contribution limits are often expressed as a percentage of it. Compensation generally includes the pay a participant received for personal services, but specific plan documents will provide the precise definition used for calculations. For 2024, the IRS has set the maximum amount of annual compensation that can be considered for contribution and benefit calculations at $345,000.

Another classification is that of a “Highly Compensated Employee” (HCE). The IRS uses this designation to perform nondiscrimination testing, which ensures that a retirement plan does not unfairly favor high earners. An employee generally qualifies as an HCE for 2024 if, during the prior year, they either owned more than 5% of the business or received compensation exceeding the $150,000 threshold based on 2023 earnings.

This HCE status can have a direct impact on how much high-earning individuals are allowed to contribute. If a plan fails its nondiscrimination tests, HCEs may be required to receive a refund of some of their contributions. This means an HCE’s actual permitted contribution could be reduced based on the savings rates of other employees, even if it is below the statutory dollar limit.