401k Contribution Limits Guide: How Much You Can Contribute?

While it is good to benefit from IRSs like 401(K), one cannot contribute however they want and whatever amount they wish to their 401(K) plans. There is an annual limit to how much you and your employer can contribute to the employee retirement program per year.

The contribution limits are present in 401(k) or Roth 401(k) for tax-deferred income. Also, the tax limits are the same for them.

To learn about 401k contribution limits, go through this article. Here, I have documented the 401k contribution limits for 2023.

401k Contribution Limits For 2023

So what is the contribution limit for 401k in 2023? If you are contributing to the 401k plan, you need to know that for 2023 the boundary is between $22,500. But, if you are 50 or older, you can contribute as much as $30,000.

Compared to the amount of 2022, this is indeed a higher number. In 2023, the 401k contribution limits for older employees were between $20,500 and $27,000.

Here is a chart of annual employee contributions to 401k in 2023. We have given a clear comparison of the same with the 2022 limit.

Also, contributors need to remember that the 401k contribution limits are cumulative across different 401k plans. If someone leaves one job to start another in a calendar year, the combined contribution limit at both of the employers’ goals would be $22,500. If the employee is 50 years old or older, they will have a limit of $30,000 as per the limit accepted in 2023.

Also, the employer’s contribution matching or non-matching contributions are exempted toward the employee’s limit for assistance.

Employees can also make nontaxable contributions to the 401k funds above the employee’s limit of contribution. However, about a fifth of the 401(k) plans allow this kind of contribution. Also, these contributions are still subjected to the maximum limit of $66,000 or $73,500 (if the contributor is 50 or older) in 2023.

Maximum 401k Contribution Limits 2023

According to the 2023 rule for 401k max contribution limits, the total contribution cannot be more than $66,000. Also, the catchup contribution for the 50-year-olds and older people is capped at $73,500. According to the rule, the total 401k contribution cannot be more than 100% of an employee’s annual compensation.

Combined Annual 401k Contribution Limits For Employee & Employer

401k Contribution Limits For Employees With Multiple Plans

Employees with access to more than one 401k plan are still limited to following the total employee contribution set by the year.

Also, if you have two different 401 k plans, you can choose to distribute the contribution of $20500 between both plans in the year 2022. Each employer can contribute up to the smaller amount of $50750 or the total compensation from that employer.

However, employees must know that these limits cannot affect the amount employees can put in their individual accounts every year. They have the right to save the amount in both of those accounts as per the legal allowances.

After-Tax 401 K Contribution Limits

Employees who have reached the limit they can save up to on their 401k plans can contribute more to that plan. They need to save the extra amount through the after-tax investment option.

By doing so, you can make your after-tax income to boost investment growth through the employer’s 401k plans. However, the after-tax investment, too, has tax obligations. You have to pay taxes when you withdraw your money.

Based on your plan, you need to be able to exceed the amount for your total employee and employer contribution in the 401K plan. Let’s say that you are 50 years old, and you contribute your required $20500 ($22500 in 2023), and your employer contributes $20500 ($22500 in 2023). In this case, you are allowed to contribute $20,000 after-tax income. This way, you will bring the total amount of after-tax contribution up to $61,000.

But, for you to be able to contribute after-tax income to the 401K plan, your employer’s plan needs to comply with it. There are some 401 k plans that allow employees to contribute their after-tax income. Also, there are some that do not. In case your 401 k does not provide contribution options for after-tax income, you may consider different strategies, like and IRS.

How Much Should You Contribute To 401 K?

It is really difficult to find out how much one can contribute to their 401K investment plans. So, how do you know about the amount? According to popular Investment Service Provider Fidelity, an employee can save 15% of their income in their 401K plan every year. This is the same for investments in any other different retirement investment plans and accounts, such as Roth.

How To Maximize 401 K Contributions?

You can get the most out of your 401k plans if you follow the different steps mentioned below –

Contribute As Early As Possible

When you start contributing early, you have more time in your hand for the money to grow with interest. The longer investment gives you more benefits of multiplying your investments.

Take Full Advantage of the 401k match

Employees can also take advantage of the employer’s contribution to their 401K plans. This is the process where the company contributes a certain amount for every single amount you contribute to the 401k plans. In most cases, the employees pay 50 cents for the $1 employees contribute.

Also, work to contribute at least 15% of your yearly income to the 401k plan. This will give you the position to start small. Also, this will include any percentage that the employer matches.

Keep Track Of Your 401k Investment

It is not uncommon for employers to forget about their 401k plans from their previous employers. If you have a 401k plan with your previous employer, you can always transfer your 401k funds to the new employer’s plan. Or you can withdraw the amount, which will deduct a certain portion for general tax and penalty.

Final Words

Employees with an active 401 k contribution plan often wonder what the limit of contribution is. However, once they have been through this article, they will have a clear understanding of the amount and how much they need to contribute to secure their retirement.

However, if you have any additional questions about the same, you can let us know through the comment section.

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