Roth 401(k) contributions are made with after-tax dollars, allowing you to withdraw earnings tax-free in retirement. To participate in a Roth 401(k), you must meet certain income limits set by the IRS. For 2023, the Modified Adjusted Gross Income (MAGI) limit for a Roth 401(k) is $153,000 for single filers. For married couples filing jointly, the upper limit is $228,000, with a phase-out range from $218,000-$228,000. If your income exceeds these limits, you cannot contribute to a Roth 401(k). However, you may still be able to contribute to a traditional 401(k).
Roth 401(k) Contribution Limits for Highly Compensated Employees
There is no income limit for contributing to a Roth 401(k). However, the amount you can contribute is limited by your compensation. In 2023, the maximum contribution limit for Roth 401(k) plans is $22,500 ($30,000 for those age 50 or older). If you are a highly compensated employee (HCE), your contribution limit may be reduced.
- HCEs are defined as employees who earn more than $135,000 in 2023 ($145,000 in 2024).
The reduction in the contribution limit for HCEs is designed to ensure that they do not receive too much tax-advantaged retirement savings. The reduction is phased in gradually as your compensation increases. The following table shows the Roth 401(k) contribution limits for HCEs in 2023:
| Compensation | Roth 401(k) Contribution Limit |
|---|---|
| $135,000 – $160,000 | $22,500 – $20,500 |
| $160,000 – $210,000 | $20,500 – $18,500 |
| $210,000 or more | $18,500 |
If you are an HCE and you contribute more than the allowable limit to your Roth 401(k), the excess contributions will be taxed as income and subject to a 10% penalty. Therefore, it is important to make sure that you do not exceed the contribution limit for your compensation level.
Roth 401(k) Income Limit for Employer Matching
Roth 401(k) plans allow employees to contribute after-tax dollars to their retirement savings. These contributions are not tax-deductible, but they grow tax-free and can be withdrawn tax-free in retirement.
There is an income limit for Roth 401(k) contributions. The limit for 2023 is $21,500 ($29,000 for those age 50 and older). This limit applies to both employee and employer contributions.
If your income is above the Roth 401(k) income limit, you can still contribute to a traditional 401(k) plan. Traditional 401(k) contributions are tax-deductible, but they are taxed when you withdraw them in retirement.
There is no income limit for employer matching contributions. This means that your employer can contribute to your Roth 401(k) plan even if you earn more than the Roth 401(k) income limit.
Employer Matching Contributions
- Employer matching contributions are not subject to the Roth 401(k) income limit.
- Your employer can contribute up to 100% of your eligible compensation to your Roth 401(k) plan, up to the annual limit.
- Employer matching contributions are vested immediately, which means that you own them even if you leave your job.
Roth 401(k) Income Limits
Roth 401(k) accounts offer tax-free growth and tax-free withdrawals in retirement. However, there are income limits for eligibility. The phase-in of Roth 401(k) income limits is as follows:
- 2023: $138,000 for single filers and $218,000 for married couples filing jointly
- 2024: $143,000 for single filers and $223,000 for married couples filing jointly
- 2025: $148,000 for single filers and $228,000 for married couples filing jointly
Individuals who earn more than these limits can still contribute to a Roth 401(k), but their contributions will be limited to the after-tax portion of the plan. The after-tax portion is not eligible for tax-free growth or tax-free withdrawals.
| Filing Status | 2023 | 2024 | 2025 |
|---|---|---|---|
| Single | $138,000 | $143,000 | $148,000 |
| Married filing jointly | $218,000 | $223,000 | $228,000 |
Roth 401(k) Income Limits
Roth 401(k) plans offer tax-free growth and tax-free withdrawals in retirement, making them an attractive savings option. However, there are income limits that determine who is eligible to contribute to a Roth 401(k) plan.
For 2023, the Roth 401(k) income limits are as follows:
**Filing status** | **Maximum income**
— | —
Single | $138,000
Married filing jointly | $218,000
Head of household | $218,000
Married filing separately (must live apart from spouse for the entire year) | $0
Impact of SEP and SIMPLE Plans on Roth 401(k) Income Limits
If you participate in a Simplified Employee Pension (SEP) plan or a Savings Incentive Match Plan for Employees (SIMPLE) plan, your Roth 401(k) income limits may be affected.
SEP Plans
- SEP plans are employer-sponsored retirement plans that allow self-employed individuals and small businesses to contribute to their employees’ retirement accounts.
- The amount you can contribute to a SEP plan is limited by a percentage of your net income from self-employment.
- If you contribute to a SEP plan, the amount of your Roth 401(k) contribution is reduced by the amount of your SEP plan contribution.
SIMPLE Plans
- SIMPLE plans are employer-sponsored retirement plans that are designed for small businesses with 100 or fewer employees.
- All eligible employees must be included in the plan, and the employer must make matching contributions.
- The amount you can contribute to a SIMPLE plan is limited to a fixed dollar amount, which is set by the IRS.
- If you contribute to a SIMPLE plan, the amount of your Roth 401(k) contribution is reduced by the amount of your SIMPLE plan contribution.
| Income | Roth 401(k) Contribution Limit |
|---|---|
| No SEP or SIMPLE contributions | Full contribution limit ($22,500 for 2023) |
| SEP contribution of $10,000 | $12,500 |
| SIMPLE contribution of $6,500 | $16,000 |
Alright folks, I hope this article has shed some light on the ins and outs of Roth 401k income limits. Remember, if you’re earning above the limit, don’t fret. You can still contribute to a traditional 401k or consider a Roth IRA. As always, it’s wise to consult with a financial advisor to tailor a plan that aligns with your unique financial goals. Thanks for reading! I’ll be here with more financial goodness soon, so be sure to check back.