The Internal Revenue Service (IRS) sets limits on the amount of money that individuals can contribute to their 401(k) retirement accounts each year. These limits apply to both employee contributions and employer matching contributions. The limit for employee contributions is $22,500 for 2023, and $30,000 for individuals who are age 50 or older. The limit for employer matching contributions is currently set at 100% of the employee’s contribution, up to a maximum of $66,000 for 2023. This means that the total amount of money that an individual can have contributed to their 401(k) account, including both employee contributions and employer matching contributions, cannot exceed $66,000 for 2023.
Employer Match Contribution Limits
In addition to the employee contribution limits, there are also limits on how much an employer can contribute to an employee’s 401(k) plan. The employer match contribution limit is the maximum amount that an employer can contribute to an employee’s 401(k) plan on a pre-tax basis. The employer match contribution limit is separate from the employee contribution limit.
For 2023, the employer match contribution limit is 100% of the employee’s compensation, up to a maximum of $66,000 ($73,500 for catch-up contributions).
Employer Match Contribution Limits
- For 2023, the employer match contribution limit is 100% of the employee’s compensation, up to a maximum of $66,000 ($73,500 for catch-up contributions).
- The employer match contribution limit is separate from the employee contribution limit.
- Employer match contributions are not included in the employee’s taxable income.
| Year | Employer Match Contribution Limit | Employee Contribution Limit |
|---|---|---|
| 2023 | 100% of employee’s compensation, up to a maximum of $66,000 | $22,500 ($30,000 for catch-up contributions) |
IRS 401(k) Contribution Limits: Including Employer Match
The Internal Revenue Service (IRS) sets annual limits on how much individuals can contribute to their 401(k) retirement plans. These limits apply to both employee contributions and employer matching contributions.
For 2023, the 401(k) contribution limit is
- $22,500 (plus a catch-up contribution limit of $7,500 for individuals age 50 or older).
Employer Matching Contributions
Employer matching contributions are contributions that an employer makes to an employee’s 401(k) plan on the employee’s behalf. These contributions are not included in the employee’s annual contribution limit.
For example, if an employee contributes $10,000 to their 401(k) plan and their employer matches 50% of their contribution, the employer would contribute an additional $5,000 to the employee’s plan. The employee’s total contribution for the year would be $15,000, which is within the IRS limit of $22,500.
Implications for High-Income Earners
High-income earners may be subject to additional contribution limits on their 401(k) plans. This is because the IRS has income limits on who can make catch-up contributions.
For 2023, the income limits for catch-up contributions are as follows:
| Filing Status | Income Limit |
|---|---|
| Single | $153,000 |
| Married filing jointly | $233,000 |
| Married filing separately | $130,000 |
| Head of household | $207,000 |
High-income earners who exceed these limits are not eligible to make catch-up contributions. This means that their total 401(k) contribution limit for the year is reduced by the amount of the catch-up contribution.
Impact on Overall Retirement Savings
The IRS 401(k) limit for employee contributions does not include employer matching contributions. This distinction has a significant impact on overall retirement savings.
- Increased Retirement Savings: Employer matching contributions effectively increase an employee’s retirement savings, as the employee receives additional contributions from their employer on a tax-advantaged basis.
- Reduced Taxable Income: The exclusion of employer matching contributions from the 401(k) limit means that employees can contribute more to their retirement without increasing their taxable income.
- Long-Term Growth Potential: Employer matching contributions are considered vested, meaning they become the employee’s property even if they leave their job. This allows for long-term growth and compounding of retirement savings.
| Contribution Type | Inclusion in 401(k) Limit | Impact on Retirement Savings |
|---|---|---|
| Employee Contributions | Yes | Limited by IRS 401(k) limit |
| Employer Matching Contributions | No | Increases retirement savings without affecting employee’s taxable income |
Coordination with Other Retirement Accounts
Employer contributions to a 401(k) are not subject to the annual contribution limit. However, they are subject to the overall limit on combined employer and employee contributions to all defined contribution plans (including 401(k) plans, 403(b) plans, and government 457 plans). The overall limit for 2023 is $66,000 ($73,500 for individuals age 50 or older).
- If you participate in multiple defined contribution plans, the limits apply to your combined contributions to all of the plans.
- Your employer will track your contributions to all of the plans and will make sure that you do not exceed the overall limit.
- If you exceed the overall limit, the excess contributions will be subject to a 6% excise tax.
In addition to the overall limit on contributions, there is also a limit on the amount of money that can be rolled over from one defined contribution plan to another. The annual limit on rollovers is $66,000 ($73,500 for individuals age 50 or older). If you exceed the rollover limit, the excess amount will be subject to a 6% excise tax.
| Type of Retirement Account | Contribution Limit (2023) |
|---|---|
| 401(k) plan | $22,500 ($30,000 for individuals age 50 or older) |
| 403(b) plan | $22,500 ($30,000 for individuals age 50 or older) |
| Government 457 plan | $22,500 ($30,000 for individuals age 50 or older) |
| Defined benefit plan | $155,000 ($225,000 for individuals age 50 or older) |
Thanks for sticking with me through this quick tour of 401(k) contribution limits. I hope it’s given you a clearer picture of how much you can save for retirement and how your employer’s contributions fit into the equation. If you have any more questions, don’t hesitate to reach out to your employer or a financial advisor. And be sure to check back for more money-saving tips and financial insights. Until next time, keep saving!