The 401(k) individual contribution limit in 2023 is $22,500 ($30,000 in individual contributions if you are 50 or older).
The 401(k) overall contribution limit in 2023 is $66,000 (or $73,500, including catch-up contributions for those 50 and older) or 100 percent of the participant’s compensation (whichever is lower).
An employer is also only able to match contributions on an income of up to $330,000 and cannot contribute an amount that is more than 25 percent of an employee’s compensation in a given year.
A 401(k) is the primary retirement savings vehicle for a large majority of the population, thanks to its tax benefits. According to 2022 data from the Investment Company Institute, about 60 million U.S. workers actively contributed to a 401(k) last year, chipping away at saving enough for the retirement they’re dreaming about.
While a 401(k) has great tax perks, it has some limitations, too. Each year, the IRS limits how much money you (and your employer) are able to contribute to a 401(k). We’re here to help you better understand the 401(k) contribution limits and the impact they may have on your retirement savings strategy.
What is a 401(k)?
A 401(k) is a type of retirement savings account. Often, a 401(k) is offered as part of a benefit package for full-time employees. The employees can deposit a portion of their paychecks into the 401(k), and in many cases, the employer will also contribute a percentage (sometimes referred to as an “employer match”). Once you reach retirement (technically once you turn 59½ if your plan allows it), you can withdraw these funds to use for whatever you’d like.
A 401(k) can be either a traditional account or a Roth account. For a traditional 401(k), you will contribute funds pre-tax, and the funds will be taxed when you make withdrawals in retirement. For a Roth 401(k), your contributions will be taxed, but when you withdraw money in retirement, you typically will not have to pay taxes on those funds.
How 401(k) contribution limits work
To limit the degree to which high-paid workers are able to take advantage of tax benefits, the IRS puts limits on the amount of money you’re able to contribute to a 401(k) in any given year. These limits apply both to individual contributions you may make and to overall contributions by anyone, including deferrals and employer contributions.
Individual contribution limits
For an individual, 401(k) contribution limits would apply to any contributions you are making into your own account. The limit applies across all your 401(k) accounts, so if you have multiple accounts, you would be able to contribute the individual maximum among all of your accounts.
Overall limit on contributions
Not only are there limits on the total amount you are able to contribute, but there are limits on the amount of income that your employer is able to match. Overall contribution limits also apply to small business owners adding contributions to a 401(k) or a solo 401(k).
What happens if you contribute too much to your 401(k)?
If you exceed the 401(k) contribution limits, you’ll need to take the funds back out of your account to avoid any late fees or penalties. Though these withdrawals would not be subject to the additional 10 percent tax on early distributions, you will have to pay income tax on the distributions. If you don’t take out funds that exceed the limit for that year, your plan may no longer be a qualified plan, which can affect your ability to take advantage of its tax benefits in the future. So, it is important that you fix the error right away if you overcontributed.
401(k) contribution limits for 2023
Here are the individual and overall contribution limits for 2023:
Individual 401(k) contribution limits for 2023
For an individual, the 401(k) maximum contribution in 2023 is $22,500. If you are 50 or older, and you have maxed out your regular contribution, you are able to make an additional $7,500 in catch-up contributions. So, in 2023, if you are 50 or older, you are able to make total individual contributions up to the $30,000 limit.
If you are contributing to a SIMPLE 401(k) plan (a retirement savings plan offered by companies with 100 or fewer employees), your individual contribution limit is $15,500 for 2023—an increase from the $14,000 limit in 2022. You can also contribute an additional $3,500 (up $500 from last year) in catch -up contributions if you are 50 or older.
Every year, the contribution limit typically increases to account for a rise in the cost of living. Last year, the IRS announced one of the highest increases to 401(k) contribution limits in the last 30 years to account for the inflation hike. In 2022, the 401(k) contribution limits were almost 10 percent lower: $20,500, plus an additional $6,500 in catch-up contributions for those age 50 and older.
Total 401(k) contribution limits for 2023
Total 401(k) contribution limits (the amount you and your employer can contribute) changed quite a bit from 2022, also due to a large adjustment for the cost of living. In 2022, the overall contribution limit was $61,000 (or $67,500, including catch-up contributions for those 50 and older). But now in 2023, the overall limit on contributions is $66,000 (or $73,500, including catch-up contributions for those 50 and older) or 100 percent of the participant’s compensation, whichever is lower. This would apply to any elective deferrals (excluding catch-up contributions), employer matches, or additional employer contributions. In 2023, your employer is also only able to match contributions on an income of up to $330,000 and cannot contribute an amount that is more than 25 percent of your compensation in a given year.
How much should you contribute to your 401(k)?
A 401(k) can be a great retirement savings vehicle, especially if your employer offers an attractive match. To get the most out of their 401(k)s, many people choose to contribute enough to max out their employers’ match. How much you’ll choose to contribute to a 401(k), however, will largely depend on your monthly budget and your overall financial plan. An effective retirement strategy often relies on a 401(k) but also includes a mix of other investments beyond a 401(k).
Including a range of financial options—such as a Roth account, an annuity, Social Security , traditional investments, and a permanent life insurance policy—in your retirement plan can help you maximize the benefits of each and get the most out of your retirement savings. This is where a financial advisor can be really helpful: He or she can help you see how all of these assets work together and guide you toward decisions that help to maximize your savings.
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