Defined Benefit Plan Contribution Limits 2024

Defined benefit plans are retirement plans that provide a fixed monthly benefit to employees when they retire. The amount of the benefit is based on a formula that considers the employee's salary, years of service, and age.

Contribution Limits for 2024

The annual contribution limit for defined benefit plans is set by the Internal Revenue Service (IRS). The limit for 2024 is $265,000. This limit applies to both employee and employer contributions.

How to Determine Your Contribution Limit

The annual contribution limit for defined benefit plans is a maximum limit. The actual amount that you can contribute to your plan may be lower, depending on your age, years of service, and the terms of your plan.

To determine your contribution limit, you can use the following formula:

Contribution Limit = (1.25 x Final Average Salary) x Years of Service x (1 - (Current Age/Normal Retirement Age))

Example

Let's say that you are a 55-year-old employee with 25 years of service. Your final average salary is $100,000. Your normal retirement age is 65.

Your annual contribution limit would be:

Contribution Limit = (1.25 x 100,000) x 25 x (1 - (55/65))

Contribution Limit = $265,000

Excess Contributions

If you contribute more than the annual limit to your defined benefit plan, the excess contributions will be subject to a 10% excise tax. The tax is paid by the plan sponsor, not the employee.

Avoiding Excess Contributions

There are a few things that you can do to avoid making excess contributions to your defined benefit plan:

• Estimate your annual contribution limit. Use the formula above to estimate your contribution limit before making any contributions.
• Work with your plan administrator. Your plan administrator can help you determine your contribution limit and track your contributions.
• Make sure that your contributions are made on a timely basis. Contributions that are made after the end of the year may be subject to the 10% excise tax.

Conclusion

Defined benefit plans can be a valuable retirement savings tool. However, it is important to understand the contribution limits for these plans and to avoid making excess contributions. By following the tips in this article, you can help ensure that your defined benefit plan contributions are used to their maximum potential.

Additional Resources

• IRS Publication 560: Retirement Plans for Small Businesses
• Defined Benefit Plan Contribution Limits
• 10% Excise Tax on Excess Contributions

Tables

Table 1: Defined Benefit Plan Contribution Limits

Table 2: Excess Contribution Tax Rates

Table 3: Avoiding Excess Contributions

Table 4: Additional Resources

Frequently Asked Questions

• What is the annual contribution limit for defined benefit plans in 2024? The annual contribution limit for defined benefit plans in 2024 is $265,000.
• How do I determine my contribution limit? You can use the formula provided in this article to determine your contribution limit.
• What happens if I make excess contributions to my defined benefit plan? If you make excess contributions to your defined benefit plan, the excess contributions will be subject to a 10% excise tax. The tax is paid by the plan sponsor, not the employee.
• How can I avoid making excess contributions to my defined benefit plan? You can follow the tips in this article to avoid making excess contributions to your defined benefit plan.