While you can save quite a lot in a 401(k) every year, you can't contribute an unlimited amount: The IRS sets clear guidelines for 401(k) contribution limits each year that you and your employer must stick to.
401(k) contribution limits for 2022
The 401(k) contribution limit for Roth and pretax contributions in 2022 is $20,500 for employee contributions and $61,000 for combined employee and employer contributions. If you're age 50 or older, you're eligible to contribute up to an additional $6,500 in catch-up contributions, raising your employee contribution limit to $27,000. Depending on your plan, you may be able to make post-tax contributions beyond the pretax and Roth contribution limit but less than the combined employee and employer contribution limit to invest even more for retirement. Total contributions cannot exceed your annual compensation at the company that holds your plan.
401(k) contribution limits for 2023
The 401(k) contribution limit for 2023 is $22,500 for employee contributions and $66,000 for combined employee and employer contributions. If you're age 50 or older, you're eligible for an additional $7,500 in catch-up contributions, raising your employee contribution limit to $30,000. Depending on your plan, you may be able to make post-tax contributions beyond the pretax and Roth contribution limit but less than the combined employee and employer contribution limit to invest even more for retirement. Total contributions cannot exceed your annual compensation at the company that holds your plan.
Roth 401(k) contribution limits
The Roth 401(k) contribution limits for 2022 and 2023 are the same as the pretax limit for traditional 401(k) plans. If you have access to a Roth 401(k) and a traditional 401(k), you can contribute up to the annual maximum across both. In other words, if you're under 50, you can't put more than $20,500 total as employee contributions in your 401(k) accounts in 2022, no matter how many accounts you have.
401(k) contribution limits
|Pretax and roth employee contributions||Employee and employer contributions||Catch-up contributions (in addition to the employee and employer limit)|
|401(k) contribution limit for 2022||$20,500||$61,000||$6,500|
|401(k) contribution limit for 2023||$22,500||$66,000||$7,500|
401(k) contribution limits when you have multiple 401(k) plans at different employers
If you have access to multiple 401(k) plans through different employers, you are still limited to the total employee contribution amount for the year.
For instance, if you have 2 401(k) plans, you may choose to split your maximum contribution of $20,500 between the plans in 2022. Each employer can then contribute up to the smaller of $50,750 or your total compensation from that company.
Note: These limits do not affect what you can put into an individual retirement account (IRA) each year. You can save the legally allowable maximum in both a 401(k) and an IRA.
After-tax 401(k) contribution limits
If you reach the maximum that you can contribute to your 401(k) as an employee, you may be able to save more for retirement in your workplace plan through after-tax contributions. That means that while your after-tax contributions have the potential to benefit investment growth while they're in your 401(k) account, you may still have to pay taxes again on that money when you withdraw funds in retirement.
Depending on your plan, you may be able to contribute up to the total employee and employer contribution limit for the year, provided your existing employee and employer contributions do not exceed the limit. For example, if you were under 50 and contributing $20,500 and your employer was contributing $20,500 in 2022, you could contribute up to an additional $20,000 as after-tax contributions to bring your total to $61,000.
Keep in mind that not all 401(k) plans allow for these after-tax contributions. If yours doesn't— or you simply want to save even more than after-tax contributions alone allow—there are other strategies to consider, like an IRA.
What happens if you contribute too much to your 401(k)?
If you contribute too much to your 401(k), you may incur costly penalties—to the tune of a 10% fine plus any unpaid income taxes on the excess contributions when you finally take them out. Excess contributions can be reported on Form 1099-R when you file taxes.
Luckily, most 401(k) plans have infrastructure in place to prevent overcontributions. But if you switch jobs midyear or have access to multiple plans, you may accidentally wind up saving too much in your 401(k). If this happens, you must request that any excess contributions be returned to you by April 15, including any earnings it made while it was in your 401(k). Excess contributions and earnings are considered taxable income, and should be reported on Forms 1099-R.
How much should you contribute to your 401(k)?
It can be hard to figure out how much to save in your 401(k). How are you supposed to know how much money you'll want or need in retirement?
Our guideline is to aim to save at least 15% of your income each year (including any employer contributions) for retirement. That includes any savings in other retirement accounts, like a Roth IRA.
How to maximize your 401(k) contributions
To get the most out of your 401(k), make sure you're:
- Contributing as early as you can
Starting to save as soon as you can is one of the keys to a successful retirement. That's because the longer your money is invested, the longer it has to benefit from compound interest, a.k.a. when your investment returns earn returns of their own.
- Taking full advantage of any 401(k) match
A 401(k) match is a special benefit your company puts into your 401(k) based on what you contribute. The formula used to determine 401(k) matches varies by company. Often, this match is 50 cents or $1 for each dollar your employee contributes. There is also often a cap on the amount the employer will match, such as 6% of your total pay. It's a good idea to contribute at least enough to get your full 401(k) match. Each dollar your company contributes is one that you don't have to.
- Working toward saving 15% for retirement
That 15% can seem like a huge amount to save for retirement, particularly when you're just starting out. But remember that 15% also includes any percentage that your employer matches, and you're able to start small and work your way up to contribute more. That might mean opting to increase your 401(k) contribution rate by 1% each year or whenever you get a raise. And if you get a bonus or another unexpected windfall, consider setting aside at least a portion of it for your retirement savings.
- Keeping track of your 401(k)s
It may be surprising, but it's not uncommon for people to forget about 401(k) plans from previous jobs. Audit your résumé and see if you have any retirement accounts collecting dust. Keeping track of these can help you get the most out of the money you've already saved. If you do find money you'd forgotten about in an old plan, you can click this link to learn more about your options for an old 401(k): 401(k) rollovers.