Defined Benefit Plan Contribution Limits 2024: Everything You Need to Know

Defined benefit plans (DBPs) are employer-sponsored retirement plans that provide employees with a guaranteed monthly benefit at retirement. In 2024, the IRS has set new contribution limits for DBPs, which are designed to ensure that both employees and employers are saving enough for retirement.

Understanding Defined Benefit Plan Contribution Limits

DBPs are subject to annual contribution limits, which are set by the IRS. These limits are designed to ensure that employees are not over-saving for retirement and that employers are not contributing too much to their employees' plans.

For 2024, the annual contribution limit for DBPs is $235,000. This limit is up from $230,000 in 2023.

In addition to the annual contribution limit, DBPs are also subject to a lifetime contribution limit. This limit is designed to prevent employees from accumulating too much money in their DBPs.

For 2024, the lifetime contribution limit for DBPs is $1,710,000. This limit is up from $1,680,000 in 2023.

Calculating Your DBP Contribution Limit

The amount that you can contribute to your DBP is based on a number of factors, including your age, your years of service, and your salary.

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

Contribution limit = (Your age - 15) x (Your years of service) x (Your salary)

For example, if you are 50 years old, have 15 years of service, and earn a salary of $100,000, your DBP contribution limit would be:

Contribution limit = (50 - 15) x (15) x ($100,000) = $225,000

Catch-Up Contributions for DBPs

Employees who are 50 years of age or older can make catch-up contributions to their DBPs. Catch-up contributions are additional contributions that can be made over and above the regular contribution limit.

For 2024, the catch-up contribution limit for DBPs is $55,000. This limit is up from $53,000 in 2023.

Tax Treatment of DBP Contributions

DBP contributions are made on a pre-tax basis, which means that they are not subject to income tax until they are withdrawn from the plan. This can provide a significant tax savings for employees.

Benefits of DBPs

DBPs offer a number of benefits to employees, including:

• Guaranteed monthly income at retirement
• Tax-deferred growth of assets
• Employer contributions
• Potential for catch-up contributions

Drawbacks of DBPs

DBPs also have some drawbacks, including:

• Lower contribution limits than 401(k) plans
• Reduced flexibility compared to other retirement plans
• Potential for benefit reductions if the plan is underfunded

Conclusion

DBPs can be a valuable retirement savings tool for employees, but it is important to understand the contribution limits and other rules that apply to these plans. By following the information in this article, you can make sure that you are maximizing your DBP contributions and taking advantage of all of the benefits that these plans offer.

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