With the publication of the August 2024 consumer price index (CPI) of 2.5% for the 12 months ended August 31, 2024, 11 of the monthly CPI rates are set and only the September 2024 CPI (scheduled for release on October 10, 2024) remains before the final annual limits are calculated.
Our initial forecast in March 2024 can be found here. It includes information about the limits for qualified retirement plans, how these limits are calculated, how they are affected by SECURE 2.0, and why they may be relevant for certain plan sponsors.
August 2024 forecast
Historical rolling 12-month changes in the CPI as of each September 30 through 2023, and through August 31 for the current federal fiscal year (FFY), are shown in Figure 1.
Figure 1: Historical 12-month percentage change each September 30, Consumer Price Index, all items, not seasonally adjusted
Source: U.S. Bureau of Labor Statistics.
The CPI as reported by the BLS for the 12 months ended August 31, 2024, was 2.5%, down from 2.9% for the 12 months ended July 31, 2024. It is down from the 3.7% annual change in the CPI as of September 30, 2023, and below both the 2.8% average annual change over the past 10 years and the 2.6% average annual change over the past 20 years.
As this is our last forecast for the year, our final predictions for the 2025 IRS limits are shown below. Bold type indicates the values that changed since our July forecast using the year-to-date CPI methodology:
- The maximum deferral for DC plans (§401[k], §403[b], §457) decreased from $24,000 to $23,500.
- The catch-up contribution limit for DC plans decreased from $8,000 to $7,500. This in turn lowers the catch-up contributions for those aged 60 to 63 from $12,000 to $11,250.
Figure 2: 2025 IRS Limits Forecast using actual FFY 2024 CPI as of August 31, 2024
| Category of annual IRS limits | 2024 IRS limits | Estimated 2025 IRS limits | Dollar increases from 2024 limit |
|---|---|---|---|
| Maximum annual annuity pension for defined benefit (DB) plans | $275,000 | $280,000 | $5,000 |
| Maximum annual addition for defined contribution (DC) plans | $69,000 | $70,000 | $1,000 |
| Maximum §401(k), §403(b), §457 deferral for DC plans | $23,000 | $23,500 | $500 |
| Catch-up contribution limit for DC plans* | $7,500 | $7,500 Ages 60 to 63: $11,250 |
$0 $3,750 |
| Compensation limit | $345,000 | $350,000 | $5,000 |
| Highly compensated employee (HCE) dollar amount | $155,000 | $160,000 | $5,000 |
| Key employee/officer compensation | $220,000 | $230,000 | $10,000 |
| Contribution limit to emergency savings accounts (ESAs) for DC plans | $2,500 | $2,500 | $0 |
| Prior-year wage threshold triggering Roth catch-up contributions to DC plans | $145,000 | $145,000** | $0 |
Source: https://www.bls.gov/cpi/ (retrieved September 11, 2024).
* Under SECURE 2.0, plans are permitted (but not required) to increase the catch-up limit for participants aged 60, 61, 62, or 63. This higher limit assumes the limit for 2025 will ultimately be based on the regular catch-up limit in 2025, as noted in draft technical corrections, instead of 2024 as passed in SECURE 2.0.
** We assumed this threshold will be indexed for inflation during the two-year transition period ending December 31, 2025.
If the change in CPI in September is more than 0.25%, the 2024 maximum deferral for DC plans will be $24,000 instead of $23,500 and the catch-up contribution limit for DC plans will be $8,000 rather than $7,500 (and the catch-up limits for those aged 60 to 63 will be $12,000 rather than $11,250). If inflation remains flat for September, the highly compensated employee (HCE) dollar amount will be $155,000 instead of $160,000. We expect all other limits to be as shown in Figure 2.
Please contact your Milliman consultant for details and questions about how these limits apply to your retirement plan(s).