After receiving an inflation-boosted $2,000 increase for 2023, it is looking like 2024 IRS contribution limits for 401(k), 4013(b) and 457 plans will return to a more modest increase, according to the most recent 2024 IRS limits forecast from Milliman.
Updated: 2025 401(k) Contribution Limits: Milliman Halves its Increase Prediction
Released this week, the forecast, using actual FFY 2023 CPI as of May 31, 2023, predicts the 2024 IRS contribution limit for defined contribution retirement plans will be raised by $500 to $23,000. It also forecasts that there will be no increase next year to the catch-up contribution limit for DC plans, currently at $7,500.
The IRS is expected to announce official 2024 401(k) contribution limits in mid- to late-October. This year, defined contribution plans got a historic contribution limit boost—the largest increase ever in terms of dollars and percentage, just under an unprecedented 10%.
The $2,000 increase raised the 401(k) and 403(b) contribution limit from $20,500 to $22,500, and the catch-up provision for participants aged 50 or over increased from $6,500 to $7,500, totaling $30,000 in employee contributions alone.
Annual IRA contributions increased to $6,500 from $6,000, and the catch-up provision remained unchanged at $1,000.
How 2024 IRS limits will be calculated
Per this week’s Milliman forecast, the 2024 IRS limits will be calculated using the 2023 limits and applying a factor that is based on the consumer price index (CPI) in federal fiscal year (FFY) 2023. FFY 2023 is defined as the 12-month period from October 1, 2022, to September 30, 2023.
After the close of FFY 2023, the IRS will use the 12 months of reported CPI to calculate the 2024 IRS limits. (The calculations are more complex than just multiplying the 2023 limits by the CPI, but those details are omitted here.)
May 2023 forecast
Milliman’s limit forecast is projected using two assumption sets. One set is based on the current trailing 12 months of CPI and the second assumes that year-to-date CPI (since September 30, 2022) will continue to increase each month through September 30, 2023, by an estimated 25 basis points (3.0% annual).
Inflation in the 12 months ending May 31, 2023, was 4.0% as reported by the U.S. Bureau of Labor Statistics (BLS) on June 13, 2023. This is down significantly from the 8.2% annual change in CPI as of September 30, 2022, but still higher than the 2.5% average annual change over the past 10 and 20 years.
Since September 30, 2022, CPI has increased about 2.5%. Projecting monthly increases of 0.25% through September 2023 results in an annual increase of 3.5% for our eight-month actual, four-month forecast.
BLS is expected to release the June CPI results on July 12, 2023, at which time Milliman said its forecast will be updated.
As previously noted, Milliman’s May forecast, using actual FFY 2023 CPI as of May 31, 2023, predicts the 2024 IRS contribution limit for DC plans will be raised by $500 to $23,000, and no increase next year to the catch-up contribution limit for DC plans, currently at $7,500.
HSA contribution limits get huge boost for 2024
In Mid-May, the Internal Revenue Service announced that the annual contribution limit in 2024 for Health Savings Accounts will jump to $4,150 for self-only coverage (up from $3,850 in 2023) and $8,300 for family coverage (up from $7,750 in 2023). The inflation-adjusted amounts mark the largest-ever increase to the amount of money that can contributed to the triple-tax advantaged accounts each year.
The increases are detailed in IRS Revenue Procedure 2023-23 and go into effect in January 2024. HSA account holders age 55 and older can contribute an extra $1,000, which means an older married couple could sock away $10,300 a year, up from $9,750 this year.
To be eligible to contribute, a participant must have an HSA-qualified high-deductible health plan (HDHP) and not be enrolled in Medicare.
SEE ALSO:
• HSA Contribution Limits Get Biggest-Ever Boost for 2024
• 2023 401k Contribution Limits Released: Big COLA Increase for Savers
• 2024 Social Security COLA Tracker: Latest Estimate Dips Below 3%
• Major 2023 401k Contribution Limit Jump Predicted
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.