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401(k) Contribution Limits for 2023

401(k) Contribution Limits for 2023

| June 26, 2023

Your employer’s 401(k) program offers a stable, reliable vehicle for retirement savings. But there are limits to how much you or your employer can contribute, and these limits often change year by year. Here are the 401(k) contribution limits for 2023.

401(k) Contribution Limits for Employees in 2023

Employees can contribute only a set amount to their 401(k) plans. As of 2023, 401(k) contribution limits are as follows:

  • For employees under 50: $22,500
  • For employees 50 or over: $30,000

The second figure reflects the traditional contribution limit plus the “catch-up” contribution limit of $7,500. This catch-up contribution limit is designed to help Americans reinforce their retirement savings as they get older.

Notice that these limits are slightly higher than in 2022. In 2022, the limits were $20,500 and $27,000.

Combined 401(k) Contribution Limits for 2023

While the above limits reflect an employee’s contribution limits, the U.S. government also sets a maximum contribution limit, which means that the employee and employer contributions are capped at a set amount. Here are the maximum 401(k) contributions for 2023:

  • For employees under 50: $66,000
  • For employees 50 or over: $73,500

Again, the second number for older employees reflects the catch-up contribution limit discussed above. And as before, these limits reflect a modest increase since 2022, which may influence the way you save money this year.

These limits are important to know because many employers offer some type of 401(k) matching program. You’ll need to adjust your 401(k) contributions to ensure that your combined value does not exceed the above limits. 

For example, if your employer offers a 50% matching contribution, you can only contribute a maximum of $44,000 (since your employer will supply the remaining $22,000) – unless you’re over 50 and can make catch-up contributions.

Roth vs. Traditional 401(k) Contribution Limits

The contribution limits are identical for both traditional and Roth 401(k) contributions. The primary difference between these options has to do with when and how your money is taxed, which doesn’t actually impact your contribution limits at present.

That is, a traditional 401(k) reduces your taxable income but then taxes the distributions you receive when you retire. So for instance, if you earn $50,000 per year but contribute $5,000 to retirement, your total taxable income is $45,000. You’ll later pay income tax on the distributions you receive after retirement.

A Roth 401(k) is basically the reverse. You’ll pay tax on your full income, even if you set money aside in your retirement account. But once you begin receiving reimbursements, these will be tax-free. 

401(k) Contribution Limits for Highly Compensated Employees

Some 401(k) plans attach additional contribution limits to highly compensated employees (HCEs). The IRS defines an HCE as someone who:

  • Has owned at least 5% of the company and receives a 401(k) 
  • Has earned $150,000 from the company in 2023 and receives a 401(k)

If either provision applies to you, then you may contribute only up to 2% more of your salary than the average non-HCE. For example, if the average company employee is contributing 10% of their salary, then you can only contribute 12%. And if the average employee contributes only 3%, you’ll be limited to 5%. 

HCEs who find this restrictive may need to look elsewhere to maximize their retirement savings, such as by setting up an IRA.

FAQs About 401(k) Contributions

Still have questions about 401(k) contribution limits? Here are answers to some of the most common.

Do Employer Contributions Count Toward My Individual Contribution Limit?

No. Your individual contribution limit will be capped at the values listed above. Your employer contributions only count toward the combined or matching contribution limits. 

Does the 401(k) Contribution Limit Apply to Multiple Accounts?

Yes. The total combined contributions you make to your 401(k) accounts must remain within the above limits. For instance, if you have both a traditional and a Roth 401(k), your total individual contributions must not exceed $22,500. 

What Happens if I Exceed the 401(k) Contribution Limit?

Exceeding your contribution limit can result in you being taxed twice: once when you contribute, then again when you withdraw. If you exceed your contribution limit, notify your HR department immediately.

Plan Your Dream Retirement

It’s never too early (or too late) to plan for retirement. Good Life Financial Advisors of Morehead City, NC, can help you set up a savings plan that empowers you to reach your truest potential. 

Contact us to set up a no-obligation discovery meeting so you can determine whether we can help you achieve your retirement goals.