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The 401(k) limit refers to the maximum amount an individual can contribute to their 401(k) plan each year. This limit applies to both employee contributions and employer matching contributions. For 2023, the 401(k) contribution limit is $22,500, and the catch-up contribution limit for individuals aged 50 and older is $7,500. It’s important to note that the 401(k) limit does include employer matching contributions. This means that if your employer contributes to your 401(k), your total contributions, including both your own and your employer’s, cannot exceed the annual limit. Understanding this concept is essential for effective retirement planning and maximizing your 401(k) savings.
Contribution Limits
The annual contribution limit for 401(k) plans is divided into two categories: employee contributions and employer matching contributions. For 2023, the contribution limits are as follows:
- Employee contributions: $22,500
- Employer matching contributions: $66,000
The employer matching contribution limit includes both regular matching contributions and any profit-sharing contributions made on the employee’s behalf.
Catch-up Contributions
Individuals who are age 50 or older by the end of the calendar year are eligible to make catch-up contributions. These contributions are in addition to the regular contribution limits. For 2023, the catch-up contribution limit is $7,500.
Catch-up contributions are subject to the same rules and limitations as regular employee contributions. They are not included in the employer matching contribution limit.
Table of Contribution Limits
| Employee Contributions | Employer Matching Contributions | Catch-up Contributions |
|---|---|---|
| $22,500 | $66,000 | $7,500 |
Employer Match vs. Employee Deferrals
The 401(k) contribution limit for 2023 is $22,500. This limit applies to the total amount of money that can be contributed to a 401(k) plan by both the employee and the employer. However, there is a separate limit on the amount of money that an employer can contribute to an employee’s 401(k) plan.
- For 2023, the employer match limit is $66,000.
- This limit includes both the employee’s deferrals and the employer’s matching contributions.
For example, if an employee contributes $10,000 to their 401(k) plan, the employer can contribute up to $56,000 in matching contributions. However, the total amount of money that can be contributed to the employee’s 401(k) plan cannot exceed $22,500.
| 2023 | |
|---|---|
| Employee deferrals | $22,500 |
| Employer match | $66,000 |
| Total | $22,500 |
Annual Additions and Tax Exemption
The annual addition limit for 401(k) plans is the maximum amount of money that can be contributed to the plan each year. This limit includes both employee contributions and employer matching contributions.
- In 2023, the annual addition limit for 401(k) plans is $22,500.
- For individuals age 50 or older, there is a catch-up contribution limit of $7,500.
Employee contributions to a 401(k) plan are made on a pre-tax basis, which means that they are deducted from your paycheck before taxes are calculated. This reduces your taxable income and can save you money on taxes.
Employer matching contributions are not included in the annual addition limit. This means that employers can contribute additional money to your 401(k) plan without affecting your own contribution limit.
| Contribution Type | 2023 Limit |
|---|---|
| Employee Contributions | $22,500 |
| Employer Matching Contributions | Not included in limit |
| Catch-up Contributions (age 50+) | $7,500 |
Plan Eligibility and Maximum Contributions
401(k) plans are employer-sponsored retirement savings plans that allow employees to contribute a portion of their paycheck on a pre-tax basis. Employers may also choose to match employee contributions, up to a certain limit.
The annual contribution limit for 401(k) plans is set by the Internal Revenue Service (IRS) and is adjusted each year for inflation. For 2023, the limit is $22,500.
In addition to employee contributions, employers may also make matching contributions. Matching contributions are limited to 100% of the employee’s contribution, up to a maximum of $66,000 in 2023.
The table below summarizes the 401(k) contribution limits for 2023:
| Type of Contribution | Annual Limit |
|---|---|
| Employee Contributions | $22,500 |
| Employer Matching Contributions | 100% of employee contribution, up to $66,000 |
It is important to note that the 401(k) contribution limits are subject to annual changes. It is advisable for employees to check with their employer or financial advisor to determine the most up-to-date limits.