If your employer offers a 401(k) plan, it can be one of the easiest and most effective ways to save for your retirement. But while a major advantage of 401(k) plans is that they let you put a portion of your pay automatically into your account, there are limits on how much you may contribute.
Each year, usually in October or November, the Internal Revenue Service (IRS) reviews and sometimes adjusts the maximum contribution limits for 401(k) plans, individual retirement accounts (IRAs), and other retirement savings vehicles. In October 2022, the IRS made updates for 2023.
- Employees can contribute up to $20,500 to their 401(k) plan for 2022 and $22,500 for 2023.
- Anyone age 50 or over is eligible for an additional catch-up contribution of $6,500 for 2022 and $7,500 for 2023.
- The general limit on total employer and employee contributions for 2022 is $61,000 ($67,500 with catch-up).
- The general limit on total employer and employee contributions for 2023 is $66,000 ($73,500 with catch-up).
- The IRS adjusts retirement plan contribution limits annually for inflation.
The basic employee contribution limit for 2022 is $20,500. This limit includes all elective employee salary deferrals as well as any after-tax contributions made to a designated Roth account within your 401(k) or a Roth 401(k) plan.
The same contribution limits apply to 403(b) plans and most 457 plans, as well as to the federal government’s Thrift Savings Plan.
If you have multiple 401(k) accounts, your total contributions to all of them—both traditional and Roth—cannot exceed that $20,500 limit. Any contributions you make to other types of retirement accounts, such as IRAs, do not affect your 401(k) contribution limit.
If you are age 50 or older, you can kick in an extra $6,500 catch-up contribution for 2022 for a total of $27,000.
The employee contribution, as described above, is $22,500 for 2023. The catch-up contribution rises to $7,500. That's a total of $30,000.
To help workers nearing retirement to add more to their tax-advantaged savings, the IRS allows 401(k) participants age 50 and over to make additional contributions beyond the standard contribution limit.
Another big benefit of participating in a 401(k) plan is that your employer may contribute to it on your behalf, as well. Many employers match employee contributions by adding, for example, 50 cents or $1 for every dollar the employee contributes.
Employers can also make elective contributions regardless of how much or little the employee contributes, up to certain limits. The general limit on total employer and employee contributions for 2022 $61,000 or 100% of employee compensation, whichever is less. For workers age 50 and up, the base limit is $67,500, which includes the $6,500 catch-up contribution.
The limit on total employer and employee contributions for 2023 is $66,000. With the $7,500 catch-up contribution, that limit becomes $73,500.
Limits for Highly Paid Employees
If you earn a very high salary, you may be considered a highly compensated employee (HCE), subject to more stringent contribution limits. To prevent wealthier employees from benefiting unfairly from the tax benefits of 401(k) plans, the IRS uses the actual deferral percentage (ADP) test to ensure that employees of all compensation levels participate proportionately in their companies' plans.
If non-highly compensated employees (NHCEs) do not participate in the company plan, the amount that HCEs can contribute may be restricted.
Contributions in Excess of Annual Limits
Evaluating your estimated contributions for the year ahead and analyzing your contributions at the end of a calendar year can be very important. If you find that you have contributions in excess of the annual limits, the IRS requires notification by March 1 and excess deferrals should be returned to you by April 15.
Comparing 2022 and 2023 Limits
The chart below provides a breakdown of how the rules and limits for defined-contribution plans (401(k), 403(b), and most 457 plans are changing for 2023 vs. 2022.
|Defined Contribution Plan Limits||2022||2023||Change|
|Maximum employee elective deferral||$20,500||$22,500||+$2,000|
|Employee catch-up contribution (if age 50 or older by year-end)*||$6,500||$7,500||+$1,000|
|Defined contribution maximum limit, all sources||$61,000||$66,000||+$5,000|
|Defined contribution maximum limit (if age 50 or older by year end); maximum contribution all sources, plus catch-up||$67,500||$73,500||+$6,000|
|Employee compensation limit for calculating contributions||$305,000||$330,000||+$25,000|
|Key employees' compensation threshold for nondiscrimination testing||$200,000||$215,000||+$15,000|
|Highly compensated employees' threshold for nondiscrimination testing||$135,000||$150,000||+$15,000|
* The catch-up contribution limit for participants age 50 or older is available to those turning 50 at any time during the year. For instance, if you were born on New Year's Eve, it applies.
How Often Does the IRS Change 401(k) Contribution Limits?
The IRS typically makes an annual adjustment to contribution limits to reflect the effects of inflation on the value of money.
How Much More Can I Contribute to My 401(k) for 2023 Than 2022?
For the tax year 2023, the maximum amount that an employee can contribute to their 401(k) retirement plan is $22,500. That is $2,000 more than you are allowed to contribute in 2022.
Has the IRS Increased Catch-Up Amounts for 2023, Too?
Yes. Although the catch-up amount for those 50 years old and over was $6,500 for the tax years 2021 and 2022, the IRS raised it to $7,500 for 2023.
The Bottom Line
Every year, the Internal Revenue Service (IRS) issues updates for the maximum amount of money that employees may contribute to their 401(k) plans. For 2022, that amount is $20,500, with a catch-up contribution of $6,500 for those age 50 and over. In total, employees can contribute a total of $27,000.
For 2023, those same, maximum contribution amounts are $22,500 and $7,500, respectively for a total of $30,000.
Make the most of your yearly opportunity to save toward retirement by maxing out your contribution amounts, if possible. Moreover, be sure to take advantage of employer-matching contributions, if they're offered, to boost your retirement savings each year.
Internal Revenue Service. "401(k) limit increases to $22,500 for 2023, IRA limit rises to $6,500."
Internal Revenue Service. “2022 Limitations Adjusted as Provided in Section 415(d), etc. Notice 2021-61.” Pages 1-2.
Internal Revenue Service. "IRS Announces 401(k) Limit Increases to $20,500."
Internal Revenue Service. "Retirement Topics - Catch-Up Contributions."
Internal Revenue Service. "Operating a 401(k) Plan."
Internal Revenue Service. "2023 Limitations Adjusted as Provided in Section 415(d), etc. Notice 2022-55," Pages 1-2.
Internal Revenue Service. "Definitions."
Internal Revenue Service. "401(k) Plan Fix-It Guide - The Plan Failed the 401(k) ADP and ACP Nondiscrimination Tests."
Internal Revenue Service. "Issue Snapshot - 401(k) Plan Catch-up Contribution Eligibility."
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