Employee and employer contributions to a 401(k) plan both count toward the annual contribution limit. For 2023, the employee contribution limit is $22,500, and the employer contribution limit is $66,000. However, employer contributions that are made on behalf of the employee still reduce the amount of money that the employee can contribute on their own. So, if an employer contributes $5,000 to an employee’s 401(k) plan, the employee can only contribute $17,500 to their own account. This is because the total amount of money that can be contributed to a 401(k) plan each year is limited to the annual contribution limit.
Employee Contribution Limits
When it comes to 401(k) plans, there are two types of contributions: employee contributions and employer contributions. Employee contributions are made with pre-tax dollars, which means they are deducted from your paycheck before taxes are taken out. Employer contributions are made with after-tax dollars, which means they are not deducted from your paycheck. Both types of contributions are subject to annual limits.
- Employee contribution limit for 2023: $22,500
- Employee contribution limit for 2024: $23,500
There is also a catch-up contribution limit for employees who are age 50 or older. The catch-up contribution limit for 2023 is $7,500. This means that employees who are age 50 or older can contribute up to $30,000 to their 401(k) plans in 2023.
| Age | Contribution Limit |
|---|---|
| Under 50 | $22,500 |
| 50 or older | $30,000 |
Employer contributions do not count towards the employee contribution limit. This means that you can contribute up to the employee contribution limit, even if your employer makes contributions to your 401(k) plan.
Employer’s Matching Limit
In addition to the employee contribution limit, there is also a limit on how much an employer can contribute to an employee’s 401(k) plan. The employer matching limit is a percentage of the employee’s salary, which varies depending on the plan. The employer matching limit is currently set at:
- 100% of the employee’s salary, up to a maximum of $66,000 in 2023 (%100, maximum $73,500 in 2024), including employee contributions.
- 50% of the employee’s salary, up to a maximum of $73,500 in 2023 (%50, maximum $81,000 in 2024), including employee contributions.
The employer matching limit is designed to encourage employees to save for retirement. By matching employee contributions, employers can help their employees save more for retirement and reduce their taxable income.
Here is a table summarizing the employer matching limit for 401(k) plans:
| Year | Matching Limit | Maximum Contribution |
|---|---|---|
| 2023 | 100% of salary, up to $66,000 | $73,500 |
| 2024 | 100% of salary, up to $73,500 | $81,000 |
Employer Contributions
Yes, employer contributions count towards the annual 401(k) contribution limit. However, employer contributions are limited to 25% of your compensation, or $66,000 in 2023 ($73,500 for those age 50 and older). If your employer contributes more than this amount, the excess will be included in your taxable income.
- For example, if you earn $100,000 per year and your employer contributes $25,000 to your 401(k), your total contribution limit would be $40,500 ($100,000 x 0.25 x $66,000 + $4,500).
- If you are age 50 or older, your employer contribution limit would be $49,000 ($100,000 x 0.25 x $73,500 + $4,500).
Catch-Up Contributions
In addition to the annual contribution limit, individuals age 50 and older can make catch-up contributions to their 401(k). These contributions are not subject to the annual limit, but they are subject to the overall limit of $66,000 ($73,500 for those age 50 and older).
Catch-up contributions are made on a pre-tax basis, which means they are deducted from your pay before taxes are withheld. This can help you save more money for retirement, as it reduces your taxable income.
The following table shows the contribution limits for 401(k) plans, including catch-up contributions:
| Age | Annual Contribution Limit | Catch-Up Contribution Limit | Total Contribution Limit |
|---|---|---|---|
| Under 50 | $22,500 | $7,500 | $30,000 |
| 50 and older | $30,000 | $7,500 | $37,500 |
Annual Contribution Reset
The annual contribution limit for 401(k) plans resets each year, allowing you to make new contributions up to the limit. The limit is set by the Internal Revenue Service (IRS) and is the same for both employee and employer contributions.
- For 2023, the limit is $22,500.
- For 2024, the limit is $23,500.
The limit applies to all 401(k) contributions, regardless of whether they are made by the employee or the employer. So, if you have multiple 401(k) plans, you cannot contribute more than the limit to all of them combined.
Employer contributions do not count towards your annual contribution limit. This means that your employer can contribute as much as they want to your 401(k) plan, and it will not affect your ability to make your own contributions up to the limit.
| Year | Contribution Limit |
|---|---|
| 2023 | $22,500 |
| 2024 | $23,500 |
Well, there you have it, folks! I hope this article has shed some light on the topic of contributions and the 401k limit. If you’re still curious or have any more questions, don’t hesitate to drop a line in the comments below. I’ll do my best to help you out. In the meantime, thanks for stopping by, and be sure to visit again soon for more informative and engaging content. Take care!