Traditional and Roth 401k plans have separate contribution limits. The combined limit for 2023 is $66,000 ($73,500 for those age 50 or older). This means that employees can contribute up to this amount across both types of plans. However, the amount that can be contributed to each type of plan is limited. For traditional 401k plans, the limit is $22,500 ($30,000 for those age 50 or older). For Roth 401k plans, the limit is $22,500 ($30,000 for those age 50 or older). Employers may also make matching contributions to both types of plans.
Employee Contribution Limits
The employee contribution limit for 401(k) plans is a crucial factor to consider when planning for retirement. These limits define the maximum amount of money an employee can contribute to their 401(k) account each year.
- Traditional 401(k): For 2023, the employee contribution limit to a traditional 401(k) plan is $22,500, with an additional catch-up contribution limit of $7,500 for those aged 50 or older.
- Roth 401(k): The Roth 401(k) contribution limit for 2023 is also $22,500, with a catch-up contribution limit of $7,500 for those aged 50 or older.
It’s important to note that these limits apply to both Traditional and Roth 401(k) plans. Employees cannot exceed the combined limit of $22,500, plus the catch-up contributions if eligible.
| Contribution Type | Contribution Limit (2023) | Catch-Up Contribution Limit (2023) |
|---|---|---|
| Traditional 401(k) | $22,500 | $7,500 |
| Roth 401(k) | $22,500 | $7,500 |
Traditional vs. Roth 401k Limits
Traditional and Roth 401ks have different contribution limits. These limits are set annually by the Internal Revenue Service (IRS) and they apply to both employee and employer contributions.
Employee Contribution Limits
- Traditional 401k: $22,500 ($30,000 for those age 50 or older)
- Roth 401k: $22,500 ($30,000 for those age 50 or older)
The combined limit for employee contributions to traditional and Roth 401ks is $66,000 ($73,500 for those age 50 or older).
Employer Matching Limits
Employers may also contribute to their employees’ 401k plans. The employer matching limit for both traditional and Roth 401ks is the same:
- 25% of the employee’s compensation, or
- $66,000 ($73,500 for those age 50 or older)
The combined limit for employer matching contributions to traditional and Roth 401ks is $132,000 ($147,000 for those age 50 or older).
| Type | Employee Limit | Employer Matching Limit | Combined Limit |
|---|---|---|---|
| Traditional | $22,500 | 25% of compensation or $66,000 | $132,000 |
| Roth | $22,500 | 25% of compensation or $66,000 | $132,000 |
| Combined | $66,000 | 25% of compensation or $66,000 | $147,000 |
Annual Limits
The annual contribution limits for 401(k) plans are set by the IRS and are subject to change each year. For 2023, the limits are as follows:
- Traditional 401(k): $22,500 (plus a catch-up contribution limit of $7,500 for participants age 50 or older)
- Roth 401(k): $22,500 (plus a catch-up contribution limit of $7,500 for participants age 50 or older)
It is important to note that these limits apply to elective deferrals made by the participant. Employer contributions do not count towards these limits.
| Traditional 401(k) | Roth 401(k) | |
|---|---|---|
| Age under 50 | $22,500 | $22,500 |
| Age 50 or older | $22,500 + $7,500 | $22,500 + $7,500 |
Traditional vs. Roth 401(k): Understanding Contribution Limits
401(k) plans are employer-sponsored retirement savings accounts that offer tax advantages to participants. There are two primary types of 401(k) plans: traditional and Roth. The main difference between the two is when taxes are paid on the contributions.
With a traditional 401(k), contributions are made pre-tax, meaning they are deducted from your paycheck before taxes are calculated. This reduces your current taxable income. However, when you withdraw the money in retirement, it is taxed as income.
Roth 401(k) contributions are made after-tax, meaning they are deducted from your paycheck after taxes have been calculated. This means your current taxable income is not reduced. However, qualified withdrawals in retirement are tax-free.
Contribution Limits
The contribution limits for traditional and Roth 401(k) plans are different. For 2023, the contribution limits are as follows:
| Plan Type | Contribution Limit |
|---|---|
| Traditional 401(k) | $22,500 |
| Roth 401(k) | $22,500 |
Catch-Up Contributions
Individuals who are age 50 or older by the end of the calendar year can make catch-up contributions to their 401(k) plans. For 2023, the catch-up contribution limit is $7,500 for both traditional and Roth 401(k) plans.
Catch-up contributions can help individuals who are behind on their retirement savings or who want to increase their retirement savings. However, it is important to note that catch-up contributions are included in the overall contribution limits. This means that the total amount you can contribute to your 401(k) plan, including catch-up contributions, cannot exceed the annual contribution limit.
Well there you have it, folks! Traditional 401k and Roth 401k limits are not combined. So, you can contribute up to the limit for each account, which can give you a nice boost towards retirement savings.
Thanks for reading! Be sure to come back and visit again later for more 401k tips and tricks.