While the 2024 projections for 401(k) and 403(b) contributions are still significant, it’s important to note that it will be a smaller increase than in the past few years. For instance, the contribution limit jumped $1,000 between 2021 and 2022 before jumping another $2,000 in 2023 to the current $22,500 limit. If projections hold true at a $500 increase for 2024, it will be the smallest jump since before the pandemic. This is mainly due to the IRS’s calculations of cost-of-living and the Consumer Price Index, which have shown a slowing in inflation over the past year.
The reason the contribution limit changes depending on the year has to do with both inflation and the overall economic conditions in a given year. The theory is that, by making these adjustments, the IRS is helping to maintain the value of your contributions over time. It’s also important to know that going over the set contribution amount can lead to not only having to pay immediate taxes on the excess funds but also getting taxed again on this already-taxed money when you eventually pull the money out.