Employer matching contributions to a 401(k) plan are not included in the annual contribution limits set by the Internal Revenue Service (IRS). This means that employees can contribute up to the annual limit, plus any employer matching contributions. For example, if the IRS annual limit is $22,500 and an employer matches 50% of employee contributions, an employee could contribute $22,500 of their own money and receive an additional $11,250 from their employer, for a total contribution of $33,750. This can help employees save more for retirement and take advantage of their employer’s matching contributions.
Employer Matching Contributions
Employer matching contributions are funds that an employer contributes to an employee’s 401(k) plan on the employee’s behalf. These contributions are made in addition to the employee’s own contributions. Employer matching contributions are a valuable way for employees to save for retirement, as they can help employees accumulate a larger nest egg over time.
- Employer matching contributions are not included in the IRS 401(k) contribution limits.
- Employer matching contributions are not subject to income tax or Social Security tax.
- Employer matching contributions are forfeited if the employee leaves the company before they are fully vested.
| Year | Employee Contribution Limit | Employer Matching Contribution Limit |
|---|---|---|
| 2023 | $22,500 | $66,000 ($73,500 including catch-up contributions) |
Annual Contribution Limits
The annual contribution limit for 401(k) plans is set by the Internal Revenue Service (IRS) and is adjusted periodically for inflation. For 2023, the limit is $22,500 (plus an additional $7,500 catch-up contribution for individuals age 50 or older).
The IRS limits include both employee contributions and employer matching contributions. This means that the total amount of money that can be contributed to a 401(k) plan each year is limited to the annual contribution limit.
| Contribution Type | 2023 Limit |
|---|---|
| Employee Contributions | $22,500 |
| Employer Matching Contributions | 100% of employee contributions, up to a maximum of 25% of employee’s salary |
| Total Annual Contribution | $66,000 (including catch-up contributions) |
It’s important to note that the employer match is not considered part of the employee’s contribution limit. This means that employees can contribute up to the full annual limit, even if their employer is also making matching contributions.
However, there are some additional limits that may apply to employer matching contributions. For example, the employer match cannot exceed 25% of the employee’s salary. Additionally, the total annual contribution limit for an employee, including both employee and employer contributions, cannot exceed $66,000 (including catch-up contributions).
Elective Deferrals
Elective deferrals, or employee contributions, are amounts that you choose to have deducted from your paycheck and contributed to your 401(k) plan. These contributions are made pre-tax, which means they are deducted from your income before taxes are calculated. As a result, they reduce your current taxable income and can potentially save you money on taxes.
For 2023, the annual limit for elective deferrals is $22,500. This limit is the same for both traditional and Roth 401(k) plans.
- In addition to elective deferrals, employers may also make matching contributions to their employees’ 401(k) plans. Matching contributions are not included in the annual limit for elective deferrals.
- Employer matching contributions are limited to 100% of the employee’s compensation, or $66,000 in 2023, including the employee’s elective deferrals.
- The total amount that an employee can contribute to their 401(k) plan, including both elective deferrals and employer matching contributions, is limited to $66,000 in 2023.
| Contribution Type | 2023 Limit |
|---|---|
| Elective deferrals | $22,500 |
| Employer matching contributions | 100% of employee’s compensation, or $66,000 |
| Total contributions | $66,000 |
Do IRS 401(k) Limits Include Employer Match?
No, IRS 401(k) limits do not include employer match. The annual contribution limit for 401(k) plans is set by the IRS and applies to both employee deferrals and employer matching contributions combined. However, there is a separate limit for catch-up contributions for individuals age 50 or older.
Contribution Limits
- Employee deferral limit: Up to $22,500 in 2023 ($30,000 for individuals age 50 or older)
- Employer match limit: Up to 100% of the first $6,650 of employee deferrals, plus an additional 50% of the next $29,350 of deferrals (for a total potential match of $7,500 in 2023)
Catch-up Contributions
Individuals age 50 or older can make additional catch-up contributions to their 401(k) plans. These contributions are not subject to the regular contribution limit and are in addition to the standard limits.
- Catch-up contribution limit: $7,500 in 2023
Table: Contribution Limits
| Contribution Type | 2023 Limit |
|---|---|
| Employee Deferral | $22,500 ($30,000 with catch-up) |
| Employer Match | Up to $7,500 |
| Catch-up Contribution | $7,500 |
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