The 401(k) contribution limit includes both employee and employer contributions. The employee contribution limit for 2023 is $22,500 (plus a catch-up contribution limit of $7,500 for those age 50 and older). The employer contribution limit for 2023 is $66,000 (plus a catch-up contribution limit of $7,500 for those age 50 and older). This means that the total amount of money that can be contributed to a 401(k) plan in 2023 is $73,500 (plus another $15,000 catch-up contribution limit for those age 50 and older).
401(k) Contribution Limits and Employer Contributions
401(k) plans are retirement savings accounts that allow employees to contribute a portion of their pre-tax income. Employers may also contribute to their employees’ 401(k) accounts, but there are limits to how much can be contributed each year.
Employee Contribution Limits
The annual contribution limit for employees in 2023 is $22,500. This limit applies to both employee pre-tax contributions and employer matching contributions.
Employer Matching Contributions
Employers may choose to match a portion of their employees’ 401(k) contributions. The employer’s matching contribution is not considered part of the employee’s contribution limit.
The amount of employer matching contributions that an employee can receive is limited to 100% of the employee’s pre-tax contribution, or $61,000 in 2023. However, the total combined employee and employer contributions cannot exceed the annual contribution limit of $66,000 in 2023.
Example
Consider an employee who earns $50,000 per year and contributes 10% of their salary to their 401(k) plan. Their employer matches 50% of their employee’s contribution.
- Employee contribution: $5,000
- Employer matching contribution: $2,500
- Total contribution: $7,500
The employee’s contribution limit of $22,500 is not exceeded, and the employer’s matching contribution of $2,500 is not included in the employee’s contribution limit.
Table Summary
| 2023 | |
|---|---|
| Employee Contribution Limit | $22,500 |
| Employer Matching Contribution Limit | 100% of employee contribution, up to $61,000 |
| Combined Contribution Limit | $66,000 |
Traditional and Roth 401k Limits
The 401k limit refers to the maximum amount that individuals can contribute to their 401k accounts annually. It’s important to note that these limits do not include employer contributions. Employer contributions are made by the employer directly into the employee’s 401k account and are not subject to the contribution limits that apply to employee contributions.
Traditional 401k Limits
- 2023: $22,500
- 2024: $23,500
Roth 401k Limits
- 2023: $22,500
- 2024: $23,500
Catch-up contributions: Individuals who are 50 or older by the end of the calendar year are eligible to make catch-up contributions. The catch-up contribution limit is $7,500 in both 2023 and 2024.
| Year | Traditional 401k Limit | Roth 401k Limit | Catch-up Contribution Limit |
|---|---|---|---|
| 2023 | $22,500 | $22,500 | $7,500 |
| 2024 | $23,500 | $23,500 | $7,500 |
401k Contribution Limits
The annual contribution limit for 401(k) plans is set by the Internal Revenue Service (IRS) and is subject to change each year. For 2023, the limit is $22,500. This limit applies to both employee and employer contributions. However, there are some exceptions to this rule.
Catch-up Contributions
- Individuals who are age 50 or older by the end of the calendar year may make catch-up contributions of up to $7,500 in 2023. This brings the total contribution limit for these individuals to $30,000.
- Catch-up contributions are not subject to the annual compensation limit.
- Catch-up contributions are not required, but they can be a valuable way to save more for retirement.
The following table summarizes the 401(k) contribution limits for 2023:
| Age | Contribution Limit |
|---|---|
| Under 50 | $22,500 |
| 50 or older | $30,000 |
It’s important to note that the 401(k) contribution limit is a maximum, not a minimum. You can contribute less than the maximum amount if you choose.
401(a) Contribution Limits
The Internal Revenue Service (IRS) sets annual contribution limits for 401(k) plans. These limits apply to both employee and employer contributions. For 2023, the contribution limits are as follows:
- Employee contributions: $22,500 (plus a catch-up contribution limit of $7,500 for participants age 50 or older)
- Employer contributions: $66,000 (plus a catch-up contribution limit of $10,000 for participants age 50 or older)
It’s important to note that the employer contribution limit includes both matching contributions and non-elective contributions (also known as profit-sharing contributions). Matching contributions are those that the employer makes on behalf of the employee, up to a certain percentage of the employee’s salary. Non-elective contributions are those that the employer makes regardless of whether the employee makes a contribution.
| Contribution Type | 2023 Limit |
|---|---|
| Employee contributions | $22,500 |
| Catch-up contributions (age 50 or older) | $7,500 |
| Employer matching contributions | $66,000 |
| Catch-up contributions (age 50 or older) | $10,000 |
When determining whether the contribution limit has been reached, all contributions to the plan are considered, regardless of their source. This means that if the employee contributes $20,000 and the employer contributes $10,000, the total contribution for the year is $30,000. If the employee has already reached the employee contribution limit, the employer cannot make additional contributions on their behalf.
Alright folks, that wraps up our dive into the 401k contribution limits. Just remember, the IRS sets these limits to balance saving for retirement with other financial goals. Whether you’re maxing out your contributions or just starting to save, every dollar counts towards a brighter financial future. We hope this article has been helpful. Stay tuned for more retirement savings tips and insights. Thanks for reading, and see you next time!