457(b) Contribution Limit 2024 to Increase to $22,500

Overview

The maximum amount that can be contributed to a 457(b) plan for 2024 has been set at $22,500, marking a $1,000 increase from the 2023 limit of $21,500. This change was announced by the Internal Revenue Service (IRS) in Revenue Procedure 2023-19.

Contribution Limits and Catch-Up Contributions

The 457(b) plan is a tax-advantaged retirement savings plan available to employees of state and local governments, as well as certain non-profit organizations. Contributions to the plan are made on a pre-tax basis, reducing the employee's current taxable income. The funds in the plan grow tax-deferred, meaning that no taxes are owed until the funds are withdrawn during retirement.

In addition to the regular contribution limit, individuals who are age 50 or older by the end of the calendar year are eligible to make catch-up contributions of up to $6,500 in 2024, up from $6,000 in 2023. This brings the total maximum contribution for 2024 to $29,000 for those eligible for catch-up contributions.

Employer Contributions

Employers may also contribute to 457(b) plans on behalf of their employees. The maximum employer contribution limit for 2024 is also set at $22,500. However, the combined limit for employee and employer contributions cannot exceed $60,000 for 2024, up from $58,000 in 2023.

Rollover Contributions

Individuals who have funds in other retirement plans, such as 401(k) plans, may also be able to roll over some or all of those funds into a 457(b) plan. However, it is important to note that rollovers from other retirement plans may be subject to income taxes and early withdrawal penalties.

Importance of 457(b) Plans

457(b) plans offer a number of benefits, including:

• Tax-deferred growth: The funds in a 457(b) plan grow tax-deferred, meaning that no taxes are owed until the funds are withdrawn during retirement. This can result in significant savings over time.
• Reduced current taxable income: Contributions to a 457(b) plan are made on a pre-tax basis, reducing the employee's current taxable income. This can result in lower income taxes in the present.
• Retirement savings: 457(b) plans provide a way for employees to save for retirement. The funds in the plan can be used to supplement other retirement savings, such as Social Security and pensions.

Strategies to Maximize 457(b) Contributions

There are a number of strategies that individuals can use to maximize their 457(b) contributions, including:

• Contributing as much as possible within the annual limits: The annual contribution limit is set by the IRS and increases periodically. Individuals should aim to contribute as much as possible within the limit to take advantage of the tax-deferred growth.
• Making catch-up contributions: Individuals who are age 50 or older by the end of the calendar year are eligible to make catch-up contributions. Catch-up contributions can help individuals save more for retirement and make up for any lost time.
• Contributing on a regular basis: Contributing to a 457(b) plan on a regular basis can help individuals build their retirement savings over time. Setting up automatic contributions can make it easy to save regularly.
• Considering rolling over funds from other retirement plans: Individuals who have funds in other retirement plans may be able to roll over some or all of those funds into a 457(b) plan. This can help consolidate retirement savings into a single account and may offer some tax benefits.

How to Open a 457(b) Plan

Individuals who are employed by a state or local government or a non-profit organization that offers 457(b) plans can contact their employer to open an account. The employer will provide information about the plan and assist with the setup process.

Conclusion

The 457(b) plan is a valuable retirement savings tool for employees of state and local governments and certain non-profit organizations. The contribution limit for 2024 has been set at $22,500, with catch-up contributions of up to $6,500 available for individuals who are age 50 or older. By following the strategies outlined above, individuals can maximize their 457(b) contributions and build a secure financial future.

Table 1: 457(b) Contribution Limits

Table 2: Catch-Up Contributions for Individuals Age 50 or Older

Table 3: Benefits of 457(b) Plans

Table 4: Strategies to Maximize 457(b) Contributions