401(k) contribution limits are set by the Internal Revenue Service (IRS) and change annually. The limits are based on a combination of factors, including your age and income. For 2023, the contribution limit for employees under the age of 50 is $22,500. Employees who are age 50 or older can make catch-up contributions of up to $7,500, for a total contribution limit of $30,000. Employers may also make matching contributions to your 401(k) plan, up to a certain limit. However, there is no overall maximum on the amount of money that can be saved in a 401(k) plan over time.
Annual Contribution Limits for 401(k) Plans
Yes, there is a maximum amount that you can contribute to your 401(k) plan each year. The limits for 2023 are as follows:
- Employee elective deferrals (pre-tax contributions): $22,500
- Catch-up contributions for employees age 50 or older: $7,500
- Employer matching contributions: No limit
The total amount that you can contribute to your 401(k) plan each year, including both employee elective deferrals and employer matching contributions, is $66,000.
| Contribution Type | 2023 Contribution Limit |
|---|---|
| Employee Elective Deferrals | $22,500 |
| Catch-up Contributions | $7,500 |
| Employer Matching Contributions | No Limit |
| Total | $66,000 |
Understanding the Maximum 401(k) Contributions
401(k) plans are a common retirement savings vehicle that offers various tax advantages. Knowing the maximum contribution limits is crucial for making informed financial decisions.
Contribution Limits
- For 2023, the annual contribution limit for individuals is $22,500 (an increase from $20,500 in 2022).
- Individuals who are age 50 or older by the end of the year can make an additional “catch-up” contribution of $7,500 (an increase from $6,500 in 2022).
Employer Matching Contributions
Many employers offer matching contributions to employees’ 401(k) accounts. This means they contribute a percentage of your salary to your 401(k) account, up to a certain limit.
Contribution Limits Including Employer Matches
The maximum contribution limit includes both employee contributions and employer matching contributions. For 2023, the combined limit is:
- $66,000 for individuals under age 50
- $73,500 for individuals age 50 or older
Table: 401(k) Contribution Limits
| Employee Contribution Limit | Catch-Up Contribution Limit (Age 50+) | Employer Matching Contribution Limit | Total Contribution Limit | |
|---|---|---|---|---|
| 2023 | $22,500 | $7,500 | $66,000 – Employee Contribution | $66,000 |
| 2022 | $20,500 | $6,500 | $64,500 – Employee Contribution | $64,500 |
It’s important to note that the 401(k) contribution limits are subject to annual adjustments based on inflation.
401(k) Contribution Limits for 2023
The maximum amount you can contribute to a traditional or safe harbor 401(k) plan is $22,500 in 2023. This limit is up from $20,500 in 2022. In addition, individuals who are age 50 or older by the end of the calendar year can make catch-up contributions of up to $7,500 in 2023, up from $6,500 in 2022.
Catch-Up Contributions for Older Workers
Catch-up contributions are designed to help older workers save more for retirement. They are available to individuals who are age 50 or older by the end of the calendar year. The catch-up contribution limit for 2023 is $7,500. This limit is in addition to the regular contribution limit of $22,500.
- Eligibility: Individuals who are age 50 or older by the end of the calendar year are eligible to make catch-up contributions.
- Limit: The catch-up contribution limit for 2023 is $7,500.
- Contribution method: Catch-up contributions can be made on a pre-tax or post-tax basis.
Individuals who make catch-up contributions will reduce their taxable income. This can result in significant tax savings. For example, a 50-year-old individual who makes the maximum catch-up contribution in 2023 will reduce their taxable income by $7,500. This could result in a tax savings of over $2,000.
| Age | Contribution limit |
|---|---|
| Under 50 | $22,500 |
| 50 or older | $22,500 + $7,500 catch-up |
401k Contribution Limits Explained
The Internal Revenue Service (IRS) sets annual limits on how much you can contribute to your 401(k) plan. These limits are subject to periodic adjustments based on economic factors. For 2023, the contribution limits are as follows:
Employee Contribution Limit
- $22,500
Employer Contribution Limit
- $66,000 (including employee contributions)
Catch-Up Contributions for Employees Age 50 and Over
- $7,500
Special Contribution Limits for High Earners
If your annual compensation exceeds a certain threshold, you may be subject to special contribution limits. For 2023, this threshold is $330,000. If your compensation exceeds this amount, your 401(k) contribution limit is reduced by the following:
| Compensation | Reduction in 401(k) Contribution Limit |
|---|---|
| $330,000 – $450,000 | $1 for every $1 over $330,000 |
| Over $450,000 | $2 for every $1 over $330,000 |
For example, if your compensation in 2023 is $400,000, your 401(k) contribution limit would be reduced by $70,000 ($400,000 – $330,000 x $1 = $70,000). This means that your total 401(k) contribution limit for the year would be $15,500 ($22,500 – $70,000 = $15,500).
And there you have it, folks! No matter how much you’re earning, there’s no max limit on how much you can contribute to your 401(k) account. So, max out as much as you can, because the government wants you to be rich (or at least comfortable in retirement). Thanks for reading, and be sure to come back for more financial wisdom and retirement-planning tips. Stay tuned!