Roth 401(k) contributions do not count towards the annual contribution limit for traditional 401(k) plans. This is because Roth 401(k) contributions are made with after-tax dollars, while traditional 401(k) contributions are made with pre-tax dollars. The annual contribution limit for traditional 401(k) plans is $22,500 in 2023, while the annual contribution limit for Roth 401(k) plans is $6,500. This means that you can contribute up to $29,000 to your 401(k) plan in 2023, with up to $6,500 of that being contributed to a Roth 401(k).
Roth vs Traditional 401k: Contribution Limits
Whether you opt for a Roth or a traditional 401k plan, the annual contribution limits are the same for both in 2023 and 2024:
- Employee elective deferrals: $22,500 ($30,000 for those age 50 or older in 2023 and 2024)
- Employer matching contributions: $66,000 in 2023, $73,500 in 2024
- Total combined limit (employee and employer contributions): $66,000 in 2023, $73,500 in 2024
Key Differences in Treatment of Contributions
Despite having the same contribution limits, Roth 401ks differ from traditional 401ks in how contributions are treated:
| Contribution Type | Roth 401k | Traditional 401k |
|---|---|---|
| Contribution | After-tax (reduce current income) | Pre-tax (reduce current income) |
| Earnings | Tax-free | Taxed upon withdrawal |
| Required Minimum Distributions (RMDs) | No RMDs | RMDs starting at age 73 (75 beginning in 2033) |
Roth 401k Income Limits
Roth 401(k) contributions are made on an after-tax basis, meaning that you pay taxes on the money before it is invested. This means that your Roth 401(k) contributions are not subject to income tax when you withdraw them in retirement.
However, there are income limits that determine whether or not you are eligible to make Roth 401(k) contributions. For 2023, the income limits are as follows:
- Single: $138,000
- Married filing jointly: $218,000
- Married filing separately: $0
- Head of household: $207,000
If your income is above the applicable limit, you are not eligible to make Roth 401(k) contributions. However, you may still be eligible to make traditional 401(k) contributions, which are made on a pre-tax basis.
| Filing Status | Income Limit |
|---|---|
| Single | $138,000 |
| Married filing jointly | $218,000 |
| Married filing separately | $0 |
| Head of household | $207,000 |
Roth 401k Contribution Limits
Roth 401k contributions are made from your paycheck after you have already paid income taxes on the money. This means you won’t pay taxes on the money when you withdraw it in retirement. The maximum contribution limit for Roth 401ks in 2023 is $22,500, or $30,000 if you’re age 50 or older.
Roth 401k and Savings Rates
How much you contribute to your Roth 401k each year will depend on several factors, including your income, your budget, and your retirement goals. A good rule of thumb is to contribute as much as you can comfortably afford. Even if you can only contribute a small amount each month, it will add up over time. Consider increasing your contribution rate each year as your income grows.
- If you’re in your 20s, you should aim to save at least 10% of your income for retirement.
- If you’re in your 30s, you should aim to save at least 15% of your income for retirement.
- If you’re in your 40s, you should aim to save at least 20% of your income for retirement.
The following table shows the maximum Roth 401k contribution limits for 2023 and 2024:
| Year | Contribution Limit | Catch-Up Contribution Limit (Age 50+) |
|---|---|---|
| 2023 | $22,500 | $7,500 |
| 2024 | $23,500 | $8,000 |
Roth 401k: Does it Count Towards Contribution Limit?
Yes, contributions to a Roth 401k count towards the annual contribution limit for 401k plans. This limit is set by the IRS and applies to both traditional and Roth 401ks.
For 2023, the annual contribution limit for 401k plans is $22,500, with an additional $7,500 catch-up contribution limit for those age 50 or older.
Tax Implications of Roth 401k
Unlike traditional 401ks, Roth 401ks are funded with after-tax dollars. This means that you do not receive a tax deduction for your contributions.
However, Roth 401k withdrawals are tax-free in retirement, provided that you meet certain requirements. This includes having held the account for at least five years and being at least age 59½.
Here are the key tax implications of Roth 401ks:
- Contributions are made with after-tax dollars.
- No tax deduction is received for contributions.
- Withdrawals are tax-free in retirement, provided that certain requirements are met.
Thanks for sticking with me through this deep dive into the world of Roth 401(k)s! I hope I’ve answered all your burning questions about contribution limits and whether or not your Roth 401(k) counts towards them. If you’ve got any more financial mysteries on your mind, be sure to swing by again. I’m always happy to help fellow money navigators like you make informed decisions about their hard-earned cash. Until next time, happy saving and investing!