If you participate in a 401(k) plan, your employer's matching contributions don't count towards your contribution limit. However, the Internal Revenue Service (IRS) does limit the contributions from you and your employer together.
Key Takeaways
- The IRS caps the amount of money you can put in a 401(k).
- The IRS caps the amount of money you and your employer can put in a 401(k).
- The amount your employer puts in doesn't affect your limit.
Contribution Limits
The limit for employee contributions to a 401(k) in 2024 is $23,000 for those under 50. For those 50 or older, the limit is $30,500. (For 2023, those numbers are $22,500 and $30,000, respectively.)
The limit for contributions made by employers and employees combined cannot exceed the lesser of 100% of an employee's compensation or $69,000 in 2024, up from $66,000 in 2023. For people 50 or over, the limit is $76,500 in 2024, and $73,500 in 2023.
The IRS adjusts contribution limits based on inflation every year.
401(k) Options
- Traditional 401(k): Set up by large companies for employees to put pretax money into a special retirement account portfolio composed of mutual funds. This money is deductible from gross income so individuals reduce their taxable income and overall tax liability. In 2024, individuals can contribute a maximum of $23,000. If you're 50 years old or over, you can contribute an additional $7,500 for a total of $30,500.
- SIMPLE 401(k): A simplified version of the traditional 401(k) established by small businesses with 100 or fewer employees and self-employed individuals. Sole proprietorships and partnerships can use these plans. SIMPLE 401(k) plan contributions max out at $16,000 for the 2024 tax year. Those 50 and over can contribute an additional $3,500 for a maximum contribution of $19,500. Employers must make a matching contribution of a maximum of 3% of a worker's salary or a nonelective contribution worth 2% of each participating employee's wages.
- Solo 401(k): A one-participant 401(k) plan or a Uni-k plan. The solo 401(k) is designed for small business owners with no employees except a spouse who works for the business. The limit for 2024 is $23,000. Taxpayers 50 and older can make an additional catch-up contribution of $7,500 for a total of $30,500.An employer can contribute up to 25% of their compensation. Not counting catch-up contributions, the combined employer-employee contribution limit maxes out at $69,000 for 2024 or 25% of your adjusted gross income (AGI), whichever is lower.
The IRS imposes limitations on the 401(k) contributions of highly compensated employees (HCEs). These individuals can only use the first $345,000 of income when computing the maximum possible contributions in 2024.
Other Retirement Plans
The contribution limits for 2024 are the same for several other qualified retirement plans that may not be as well known as the 401(k).
- 403(b): Designed for employees in the education and healthcare sectors, such as teachers, school administrators, librarians, doctors, and nurses. Individuals who work in tax-exempt organizations, including clergy members, church employees, and those who work for 501(c)(3)s also qualify. The 403(b) plan is structured as an annuity or a pension plan that makes distributions in regular installments when the account holder retires.
- 457 Plan: Offered by governments at the state and local levels and some nonprofit organizations. Police officers and firefighters can take part in the plan. This plan does not have a 10% early withdrawal penalty. Another key feature of the 457 plan is that it allows individuals who are nearing retirement to increase salary reductions. This means an individual three years away from retirement may put twice the normal amount, or $46,000 into their 457 plan in 2024.
- TSP: A plan exclusively for federal government employees and military personnel. Thrift Savings Plan (TSP) participants can invest six funds. Unlike the traditional 401(k), TSPs offer sliding employer matches. The employer contributes 1% of your salary to a TSP, even if you don't. This maxes out at 5% with a 5% employee contribution.
When Can I Withdraw From My 401(k)?
Individuals can withdraw from an IRA or 401(k) at 59½. Any withdraws made earlier than this are called "premature" distributions and individuals are subject to an additional 10% early withdrawal tax unless an exception applies. Most retirement plan distributions are also subject to income tax.
What Does It Mean to Max Out My 401(k)?
If you're under 50, the maximum you can contribute to your 401(k) in 2024 is $23,000. If you're 50 or older, the maximum is $30,500. Contributing $23,000 or $30,500, depending on your age is enough to max out your 401(k). That's what maxing out your 401(k) means: doing your part to contribute the maximum amount you're allowed to as an employee. Your employer match is a bonus on top of that.
What is the Employer Match 401(k) Limit?
The most an employer and employee can contribute together for 2024 is $69,000 if the employee is under 50, or $76,500 if the employee is 50 or older. Subtracting the maximum employee contribution limit for 2024 gives us $46,000 if the employee is under 50, or $53,500 if the employee is 50 or older. That's the most the employer can contribute to a 401(k) account.
Note: The employer can't contribute more than the employee's salary.
What Happens If I Exceed My 401(k) Limit?
You must notify the administrator of your 401(k) plan that you exceeded the contribution limit. Excess contributions and related earnings must be withdrawn from your account by the April 15 deadline. All excess contributions will be taxed as ordinary income in the year they are made. If excess contributions aren't withdrawn before tax day, they will be taxed a second time as income in the tax year in which they are withdrawn.
What is the Employer Match 401(k) Maximum?
The maximum an employer can contribute to an employee's 401(k) account in 2024 is $46,000 if they are under 50. If the employee is 50 or older, it's $53,500.
How Do I Max Out My 401(k) With an Employer Match?
To max out your 401(k) with an employer match, you just need to contribute the maximum amount that you're allowed to in any given year, up to the limit set by the Internal Revenue Service (IRS). The employer match does not count against this limit; this is the maximum that you can contribute as an employee. For 2024, if you're under 50 years old, the limit is $23,000. If you're 50 or older, the limit is $30,500.
The Bottom Line
With a 401(k), an employer may match an employee's contribution up to a certain amount. This amount is in addition to the maximum contribution that an employee can make. That is, an employer's contribution doesn't count against what an employee is allowed to contribute.
