Individuals saving for retirement through a 401(k) plan set by their employers face limits on how much they can contribute each year. These limits are set by the Internal Revenue Service (IRS) and adjusted periodically to keep pace with inflation. For 2023, the maximum amount an employee can contribute to their 401(k) plan is $22,500. Individuals who are age 50 or older by the end of the calendar year can make additional catch-up contributions up to $7,500.
401(k) Contribution Limits
401(k) plans are employer-sponsored retirement savings plans that allow employees to contribute a portion of their paycheck on a pre-tax basis. These contributions are invested in a variety of investment options, such as stocks, bonds, and mutual funds. The money in a 401(k) plan grows tax-deferred, meaning that taxes are not paid on the investment earnings until the money is withdrawn in retirement.
The maximum amount that employees can contribute to their 401(k) plans is set by the Internal Revenue Service (IRS). The limits are adjusted annually for inflation.
Contribution Limits for 2023
* **Employee contribution limit:** $22,500
* **Catch-up contribution limit (for participants age 50 or older):** $7,500
The employee contribution limit is the maximum amount that an employee can contribute to their 401(k) plan on a pre-tax basis. The catch-up contribution limit is an additional amount that employees age 50 or older can contribute to their plans.
In addition to the employee contribution limit, employers can also make matching contributions to their employees’ 401(k) plans. The maximum amount that an employer can contribute to an employee’s 401(k) plan is 100% of the employee’s compensation, up to a limit of $66,000 for 2023.
| Contribution Limit | 2023 |
|---|---|
| Employee contribution limit | $22,500 |
| Catch-up contribution limit (age 50 or older) | $7,500 |
| Employer contribution limit | 100% of employee’s compensation, up to $66,000 |
Understanding the 401k Contribution Limits
A 401k is a retirement savings plan offered by employers in the United States. Employees contribute a portion of their salary to the plan, and many employers match this contribution up to a certain limit. The maximum amount that can be contributed to a 401k plan varies each year, so it’s important to stay up-to-date on the limits.
2023 401k Contribution Limits
- Individual limit: The maximum amount an individual can contribute to their 401k plan in 2023 is $22,500.
- Catch-up contributions if age 50 or older: Individuals who are age 50 or older by the end of the calendar year can make additional catch-up contributions of up to $7,500, for a total of $30,000.
- Employer matching contributions: Employers can also contribute to their employees’ 401k plans. The limit for employer matching contributions is 100% of the employee’s compensation, up to a maximum of $66,000 in 2023. This limit includes both the employee’s elective deferrals and any matching contributions made by the employer.
Employer Matching Contributions
Employer matching contributions are a valuable benefit that can help employees save more for retirement. However, it is important to note that employers are not required to offer matching contributions. If your employer does offer matching contributions, it is important to contribute enough to your 401k plan to take full advantage of the match.
Table: 401k Contribution Limits 2023
| Individual | Catch-up | Employer Match |
|---|---|---|
| $22,500 | $7,500 | $66,000 |
401(k) Contribution Limits
The maximum amount employees can contribute to their 401(k) plans increases each year. For 2023, the limit is $22,500. This limit applies to both traditional and Roth 401(k) plans.
Age-Based Catch-up Contributions
Employees who are age 50 or older by the end of the calendar year can make additional catch-up contributions to their 401(k) plans. 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 for 2023.
| Age | Contribution Limit | Catch-up Contribution Limit | Total Contribution Limit |
|---|---|---|---|
| Under 50 | $22,500 | $0 | $22,500 |
| 50 or older | $22,500 | $7,500 | $30,000 |
401k Contribution Limits Explained
401(k) plans are employer-sponsored defined contribution retirement plans that allow employees to save for retirement on a tax-advantaged basis. One of the most important factors to consider with a 401(k) plan is the annual contribution limit.
The contribution limit for traditional and Roth 401(k) plans increases each year. For 2023, the contribution limit is $22,500, up from $20,500 in 2022. Individuals who are age 50 or older can contribute an additional $7,500 in catch-up contributions, for a total maximum contribution of $30,000 in 2023.
Special Rules for Highly Compensated Employees
There are special contribution limits for highly compensated employees (HCEs). HCEs are defined as employees who earned more than $135,000 in 2022 ($145,000 in 2023), and who are among the top 20% of employees in terms of compensation.
For 2023, the contribution limit for HCEs is $66,000, including both employee and employer contributions. This includes the $22,500 employee contribution limit and the $43,500 employer contribution limit.
HCEs who are age 50 or older can contribute an additional $7,500 in catch-up contributions, for a total maximum contribution of $73,500 in 2023.
Contribution Limits for 2023
| Regular Contribution Limit | Catch-Up Contribution Limit | Total Maximum Contribution | |
|---|---|---|---|
| Traditional/Roth 401(k) | $22,500 | $7,500 | $30,000 |
| HCEs | $22,500 | $7,500 | $66,000 |
| HCEs Age 50 or Older | $22,500 | $7,500 | $73,500 |