The Internal Revenue Service (IRS) sets limits on how much you can contribute to your 401(k) retirement account each year. These limits are designed to ensure that people don’t put too much money into their 401(k)s and avoid paying taxes on those funds. The IRS limits are updated each year to keep pace with inflation. For 2023, the limit for employee contributions to a 401(k) is $22,500. For employees who are age 50 or older, there is an additional catch-up contribution limit of $7,500, making the total limit $30,000. Employers can also make contributions to their employees’ 401(k)s. The limit on employer contributions is $66,000 for 2023. However, the total amount that an employee can receive from their employer and their own contributions is limited to $66,000.
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The IRS Limit on 401(k) Contributions
The Internal Revenue Service (IRS) sets limits on how much money you can contribute to your 401(k) plan each year. These limits are in place to ensure that people do not use 401(k) plans as a way to avoid paying taxes on their income. The IRS limits on 401(k) contributions are as follows:
- Employee Elective Deferrals: For 2023, the limit is $22,500 (up from $20,500 in 2022). For employees age 50 or older, there is an additional catch-up contribution limit of $7,500 (up from $6,500 in 2022), bringing the total limit to $30,000.
- Employer Matching Contributions: Employer matching contributions are limited to 100% of the employee’s elective deferrals.
- Annual Compensation Limit: The total amount of money you can contribute to your 401(k) plan each year, including both employee elective deferrals and employer matching contributions, is limited to $66,000 (up from $61,000 in 2022). For employees age 50 or older, there is an additional catch-up contribution limit of $7,500 (up from $6,500 in 2022), bringing the total limit to $73,500.
It is important to note that these limits are for calendar year 2023. The IRS may adjust these limits in future years.
If you contribute more than the IRS limit to your 401(k) plan, the excess contributions will be taxed as income and may be subject to a 10% penalty. Therefore, it is important to make sure that you do not exceed the IRS limits on 401(k) contributions.
Employer Matching Contributions
Employer matching contributions are a type of 401(k) contribution that is made by your employer. These contributions are made on a dollar-for-dollar basis, up to a certain limit. The IRS limit on employer matching contributions is 100% of the employee’s elective deferrals.
Employer matching contributions are a great way to save for retirement. They allow you to increase your retirement savings without having to reduce your take-home pay. However, it is important to note that employer matching contributions are not guaranteed. Your employer can choose to reduce or eliminate their matching contributions at any time.
| Contribution Type | 2022 Limit | 2023 Limit |
|---|---|---|
| Employee Elective Deferrals | $20,500 | $22,500 |
| Employer Matching Contributions | 100% of employee deferrals | 100% of employee deferrals |
| Annual Compensation Limit | $61,000 | $66,000 |
| Catch-up Contribution Limit (age 50+) | $6,500 | $7,500 |
The IRS Limit on 401(k) Contributions
The Internal Revenue Service (IRS) sets limits on the amount of money you can contribute to your 401(k) plan each year. These limits are in place to encourage saving for retirement while also preventing people from using 401(k) plans as a tax shelter for large amounts of money.
Contribution Limits for 2023
- Regular contribution limit: $22,500
- Catch-up contribution limit for those age 50 and older: $7,500
Catch-Up Contributions
If you are age 50 or older by the end of the calendar year, you can make additional “catch-up” contributions to your 401(k) plan. The catch-up contribution limit for 2023 is $7,500. This means that you can contribute a total of $22,500 + $7,500 = $30,000 to your 401(k) plan in 2023 if you are age 50 or older.
Catch-up contributions are a great way to increase your retirement savings if you are nearing retirement age. However, it is important to note that catch-up contributions are subject to the same tax and withdrawal rules as regular 401(k) contributions.
Table of 401(k) Contribution Limits
| Age | Regular Contribution Limit | Catch-Up Contribution Limit | Total Contribution Limit |
|—|—|—|—|
| Under 50 | $22,500 | $0 | $22,500 |
| 50 and older | $22,500 | $7,500 | $30,000 |
Annual Limits
The Internal Revenue Service (IRS) sets annual limits on the amount of money that you can contribute to your 401(k) plan. These limits are adjusted each year to keep pace with inflation. For 2023, the annual contribution limit for 401(k) plans is $22,500 ($30,000 if you are age 50 or older).
- The annual contribution limit applies to both employee contributions and employer matching contributions.
- If you contribute more than the annual limit, you will be subject to a 6% excise tax on the excess amount.
- You can make catch-up contributions if you are age 50 or older. The catch-up contribution limit for 2023 is $7,500.
The following table shows the IRS limits on 401(k) contributions for the past several years:
| Year | Employee Contribution Limit | Catch-Up Contribution Limit |
|---|---|---|
| 2023 | $22,500 | $7,500 |
| 2022 | $20,500 | $6,500 |
| 2021 | $19,500 | $6,500 |
| 2020 | $19,000 | $6,000 |
| 2019 | $19,000 | $6,000 |
It is important to note that these limits are subject to change each year. Therefore, it is always a good idea to consult with a financial advisor or tax professional to find out the most up-to-date information on 401(k) contribution limits.
And there you have it, folks! Now you know the ins and outs of the IRS limits on 401(k) contributions. Remember, these limits are subject to change, so it’s always a good idea to check with the IRS or your financial advisor for the most up-to-date information. Thanks for reading, and be sure to check back later for more retirement savings tips and insights. Keep growing that nest egg, my friends!