Individuals and employers can contribute to a 401(k) plan up to a set limit each year. This limit is adjusted annually to keep pace with inflation. For 2023, the contribution limit for participants under age 50 is $22,500, with an additional catch-up contribution limit of $7,500 for those who are age 50 or older. Employers can also make matching contributions, which are not subject to the same limits as employee contributions. Understanding these contribution limits is essential for maximizing retirement savings and avoiding potential penalties.
Annual Contribution Limits
Yes, there are annual contribution limits for 401(k) plans. These limits are set by the Internal Revenue Service (IRS) and are adjusted periodically. For 2023, the contribution limits are as follows:
- Employee elective deferrals: $22,500 ($30,000 for those age 50 and older)
- Employer matching contributions: 100% of employee elective deferrals up to the annual limit, plus an additional 5% of employee compensation
- Total contributions (employee elective deferrals + employer matching contributions): $66,000 ($73,500 for those age 50 and older)
Note that these limits are subject to change in the future. It is important to check with the IRS or your plan administrator for the most up-to-date information.
| Contribution Type | 2023 Limit |
|---|---|
| Employee elective deferrals | $22,500 ($30,000 for those age 50 and older) |
| Employer matching contributions | 100% of employee elective deferrals up to the annual limit, plus an additional 5% of employee compensation |
| Total contributions | $66,000 ($73,500 for those age 50 and older) |
Employer Matching Contributions
In addition to employee contributions, employers may also make matching contributions to their employees’ 401(k) plans. The maximum amount that an employer can contribute to an employee’s 401(k) plan, including both employee and employer contributions, is $66,000 in 2023 ($73,500 for those who are age 50 or older by the end of the calendar year). This limit is set by the Internal Revenue Service (IRS) and is intended to ensure that 401(k) plans are not used to evade taxes.
- Employer matching contributions are not subject to the annual contribution limit, meaning that employers can contribute more than the limit to their employees’ plans.
- Employer matching contributions are also tax-deductible, which can provide a significant tax benefit to employers.
- Many employers offer matching contributions as a way to attract and retain employees, as well as to encourage them to save for retirement.
The amount that an employer contributes to an employee’s 401(k) plan is typically determined by the terms of the plan document. Some plans provide for a fixed matching contribution, while others provide for a matching contribution that is based on the employee’s salary or other factors.
| Type of contribution | Contribution limit |
|---|---|
| Employee elective deferrals | $22,500 ($30,000 for those who are age 50 or older by the end of the calendar year) |
| Employer matching contributions | No limit |
| Total contributions (employee and employer combined) | $66,000 ($73,500 for those who are age 50 or older by the end of the calendar year) |
401k Contribution Limits
401(k) plans are retirement savings accounts that allow employees to save for their retirement. Employees can contribute to their 401(k) accounts on a pre-tax or post-tax basis, and employers may also make matching contributions. There are annual limits on the amount of money that employees and employers can contribute to 401(k) accounts.
For 2023, the annual contribution limit for employees is $22,500. This limit is the same for both pre-tax and post-tax contributions. Employers can also make matching contributions to their employees’ 401(k) accounts, up to 100% of the employee’s compensation. However, the total amount of money that an employee and their employer can contribute to a 401(k) account cannot exceed $66,000 in 2023. This limit includes both employee and employer contributions.
Catch-Up Contributions
Employees who are age 50 or older can make catch-up contributions to their 401(k) accounts. These contributions are in addition to the regular annual contribution limit. For 2023, the catch-up contribution limit is $7,500. Catch-up contributions can be made on a pre-tax or post-tax basis, and employers are not permitted to make matching contributions to catch-up contributions.
401(k) Contribution Limits for 2023
| Contribution Type | Employee Limit | Employer Limit | Total Limit |
|---|---|---|---|
| Regular Contributions | $22,500 | 100% of employee compensation (up to $61,000) | $66,000 |
| Catch-Up Contributions (age 50+) | $7,500 | N/A | $7,500 |
401k Contribution Limits
The annual contribution limit for 401(k) plans is $22,500 in 2023, up from $20,500 in 2022. This limit applies to both employee and employer contributions. If you’re age 50 or older, you can make an additional “catch-up” contribution of up to $7,500 in 2023, up from $6,500 in 2022.
Special Rules for Certain Plans
- 403(b) plans: The annual contribution limit for 403(b) plans is the same as the limit for 401(k) plans, but there is no catch-up contribution option for 403(b) plans.
- SIMPLE IRAs: The annual contribution limit for SIMPLE IRAs is $15,500 in 2023, up from $14,000 in 2022. If you’re age 50 or older, you can make an additional catch-up contribution of up to $3,500 in 2023, up from $3,000 in 2022.
- SEP IRAs: The annual contribution limit for SEP IRAs is the lesser of 25% of your net self-employment income or $66,000 in 2023, up from $61,000 in 2022.
| Plan Type | Annual Contribution Limit in 2023 | Catch-Up Contribution Limit for Age 50+ |
|---|---|---|
| 401(k) | $22,500 | $7,500 |
| 403(b) | $22,500 | N/A |
| SIMPLE IRA | $15,500 | $3,500 |
| SEP IRA | 25% of net self-employment income or $66,000 | N/A |
And that’s all there is to it! The 401k contribution limit is a bit of a moving target, but hopefully this article has given you a good overview of what it is and how it works. Remember, these limits are set by the IRS and are subject to change, so be sure to check back with us later to stay up-to-date. Thanks for reading, and we’ll see you next time!