Employer Employer contributions to a 401(k) plan are not included in the annual contribution limit for employees. This means that employees can contribute up to the annual limit ($22,500 for 2023, plus an additional $7,500 if age 50 or older) and their employer can also make contributions up to the annual limit ($66,000 for 2023, plus an additional $7,500 if age 50 or older). Therefore, the total amount of money that can be contributed to an employee’s 401(k) plan is the sum of the employee’s contributions and the employer’s contributions, up to the applicable limits.
Pre-Tax and Post-Tax Contributions
Employer contributions to 401(k) plans can be either pre-tax or post-tax. Pre-tax contributions are deducted from your paycheck before taxes are calculated, while post-tax contributions are deducted after taxes.
### Pre-Tax Contributions
- Reduce your current taxable income, potentially lowering your tax bracket
- Grow tax-free until withdrawn during retirement
- May be eligible for a tax credit or deduction
### Post-Tax Contributions
- Do not reduce your current taxable income
- Grow tax-free until withdrawn
- Withdrawn as after-tax income, potentially taxed again
| Contribution Type | 2023 Limit | 2024 Limit |
|---|---|---|
| Employee (Pre-Tax + Post-Tax) | $22,500 | $23,500 |
| Employer (Pre-Tax + Post-Tax) | $66,000 | $73,500 |
| Catch-up Contributions (Age 50+) | $7,500 | $8,000 |
Employer contributions count towards the total 401(k) contribution limit, which is $66,000 in 2023 ($73,500 in 2024). This means that your employer’s contributions will reduce the amount you can contribute to your 401(k) on a pre-tax basis.
Employer Matching Contributions
Employer contributions to your 401(k) account, including matching contributions, do not count towards the annual contribution limit set by the IRS. This means that you can contribute up to the annual limit ($22,500 for 2023, $30,000 for those aged 50 and over), plus any employer matching contributions.
Contribution Limits
- Employee Elective Deferrals: $22,500 ($30,000 for those aged 50 and over)
- Employer Matching Contributions: No annual limit
- Combined Employee and Employer Contributions: $66,000 ($73,500 for those aged 50 and over)
| Employee Age | Employee Elective Deferrals | Employer Matching Contributions | Combined Contributions |
|---|---|---|---|
| Under 50 | $22,500 | No limit | $66,000 |
| 50 and over | $30,000 | No limit | $73,500 |
Annual Contribution Limits
For 2023, the annual contribution limit for 401(k) plans is $22,500. For individuals aged 50 and older, an additional catch-up contribution of $7,500 is allowed, bringing the total limit to $30,000.
These limits apply to combined employee and employer contributions. However, employee contributions are limited to $20,500 for 2023, with an additional $6,500 catch-up contribution for individuals aged 50 and older. Employer contributions do not count towards the employee contribution limit.
Example
Suppose an individual is 35 years old and contributes $10,000 to their 401(k) plan. Their employer also contributes $5,000. The individual’s total contribution for the year is $15,000, which is well within the employee contribution limit of $20,500.
In this case, the employer’s contribution does not affect the individual’s contribution limit. The individual could still contribute an additional $5,500 to their 401(k) plan for the year.
| Age under 50 | Age 50 and over | |
|---|---|---|
| Employee contribution limit | $20,500 | $20,500 + $6,500 catch-up contribution |
| Catch-up contribution limit | N/A | $6,500 |
| Combined employee and employer contribution limit | $22,500 | $22,500 + $7,500 catch-up contribution |
Participant vs. Employer Contributions
The annual contribution limit for 401(k) plans is divided into two categories: participant contributions and employer contributions. Participant contributions are the amounts you elect to defer from your paycheck into your 401(k) account. Employer contributions are the amounts your employer contributes to your 401(k) account on your behalf.
- Participant Contributions: These are the contributions you make to your 401(k) plan from your own paycheck. In 2023, the limit on participant contributions is $22,500 ($30,000 if you are age 50 or older).
- Employer Contributions: These are the contributions your employer makes to your 401(k) plan on your behalf. Employer contributions are not subject to the same limit as participant contributions. However, there are limits on the total amount of money that can be contributed to your 401(k) plan each year, including both participant and employer contributions.
| Contribution Type | 2023 Limit |
|---|---|
| Participant Contributions | $22,500 |
| Employer Contributions | 100% of participant compensation, up to a maximum of $66,000 ($73,500 if age 50 or older) |
| Total Contributions | $66,000 ($73,500 if age 50 or older) |
Employer contributions do not count towards the participant contribution limit. In other words, you can contribute up to the participant contribution limit of $22,500 ($30,000 if age 50 or older) even if your employer also contributes to your 401(k) plan.
Hey there, folks! Thanks so much for taking the time to explore the world of 401k contributions. We hope this article helped shed some light on the topic and answered any burning questions you might have had. Remember, if you’re ever curious about more money matters, feel free to swing by again. We’ve got a whole host of financial tips and tricks waiting to help you make the most of your hard-earned cash. Take care and see you on the next adventure!