Contributing to a 401(k) can be a smart way to start preparing for retirement — but there are a few rules to keep in mind.
401(k) contribution limits tell you how much you can contribute in a calendar year. There’s also a combined contribution limit for you and your employer, plus catch-up contribution limits.
If you’re just getting started with your 401(k), understanding 401(k) contribution limits for 2024 is important. Let’s take a closer look at the 2024 401(k) contribution limits so you can maximize your retirement savings.
401(k) contribution limits for 2024
Each year, the 401(k) contribution limits increase by a small amount. If you recently started a 401(k), the 2024 contribution limits are particularly important.
The 401(k) 2024 employee contribution limit is $23,000, which is an increase of $500 from the previous year. This contribution limit doesn’t include catch-up contributions or contributions your employer makes to your 401(k).
The total overall 401(k) contribution limit for 2024, which includes employer matching contributions and nonelective contributions, is $69,000. This limit doesn’t include catch-up contributions for employees who are 50 years or older.
You can talk to your plan administrator to figure out how much you need to contribute to maximize your 401(k) contributions for 2024.
401(k) contribution limits for 2023
Since 401(k) contribution limits typically increase each year, the contribution limits for 2023 are slightly lower.
The 2023 401(k) contribution limit was $22,500, or $500 less than the 2024 limit. This is the personal contribution limit, which means it doesn’t include catch-up contributions or any contributions made by your employer.
In total, the overall 401(k) contribution limit for 2023 is $66,000. This includes your personal contributions as well as any contributions your employer makes, but catch-up contributions aren’t included.
The catch-up contribution limit for 2023 is $7,500. If you’re eligible to make catch-up contributions, your total combined 401k 2023 contribution limit is $73,500.
Catch-up contribution limits for 2024
If you’re 50 or older at the end of the calendar year, you can make catch-up contributions.
The 401(k) contribution limit for those over 50, or the catch-up contribution limit, is $7,500 in 2024. This means that your total 401(k) contribution limit for 2024 is $30,500. This number only includes personal contributions — employer matches. Nonelective contributions aren’t included.
Catch-up contributions aren’t exclusive to 401(k) plans. You can also make catch-up contributions if you have a 403(b), SARSEP, or governmental 457(b).
All catch-up contributions must be made via elective deferrals, and you have until the end of the calendar year to make your annual catch-up contributions.
If you weren’t able to build a 401(k) savings when you were younger, catch-up contributions can help you make up for lost time.
After-tax 401(k) contribution limits for 2024
The 401(k) contribution limits set by the IRS apply to pre-tax contributions. If you max out your pre-tax contribution limit, you may still be able to make after-tax contributions to your 401(k) account.
Keep in mind that after-tax contributions aren’t always allowed. According to CNBC, about 21% of company plans offered after-tax 401(k) contributions — a slight increase from 19% in 2020. Check with your plan advisor to see if after-tax contributions are permitted.
If you didn’t max out your total contribution limit — including employer matches and nonelective contributions — you can make additional after-tax contributions if your 401(k) allows for them.
If your 401(k) allows you to make after-tax contributions, you have to include those contributions on your tax return. However, you can’t deduct after-tax contributions on your tax return like you can with pre-tax contributions.
After-tax contributions offer several benefits. These contributions grow tax-free like Roth IRA or Roth 401(k) contributions, and you can make qualified withdrawals without paying taxes or penalties.
The only real downside to making after-tax contributions is that many 401(k) plans don’t allow them. You can talk to your plan administrator to learn more about after-tax contributions and how you can use them to supplement your pre-tax contributions.
Are the contribution limits different for a Roth 401(k)?
Whether you’re contributing to a Roth 401(k) or a traditional 401(k), the same contribution limits apply. This includes your personal contribution limit as well as the total contribution limit, including employer matches and nonelective contributions.
The difference between a traditional 401(k) and a Roth 401(k) is the type of contributions you make:
- Traditional 401(k): Contributions to your traditional 401(k) are made with pre-tax dollars, which means you can deduct contributions on your taxes. When you withdraw money from a traditional 401(k), it’s taxed as regular income.
- Roth 401(k): Roth 401(k) contributions are made with after-tax dollars, so your money grows tax-free, and you don’t pay taxes on withdrawals. Roth 401(k) contributions aren’t tax-deductible.
You may be able to make after-tax contributions to a traditional 401(k), and those contributions will grow tax-free. Check with your plan administrator to find out if you can make after-tax contributions.
IRAs give you the freedom to choose how you invest your money. You can also have a financial advisor manage your Roth IRA for you.
Are contribution limits different for 403(b) and 457(b) plans?
403(b) plans,or tax-sheltered annuity (TSA) plans, are a type of retirement plan offered by public schools and certain 501(c)(3) tax-exempt organizations. 457(b) plans are typically for governmental employees, although there are also nongovernmental 457(b) plans.
The contribution limits for 403(b) and 457(b) plans are the same as the 401(k) contribution limits for any given calendar year. In 2024, the 403(b) and 457(b) contribution limit is $23,000 for personal contributions.
If you’re turning 50 or over the age of 50 at the end of the 2024 calendar year, you’re also eligible to make up to $7,500 in catch-up contributions to your 403(b) or 457(b). This increases your total contribution limit to $30,500.
Your employer can also contribute to your 403(b) plan, and employers may contribute to some 457(b) plans. Employer contribution limits are separate from your personal contribution limit, so you can still personally contribute up to $23,000.
Keep in mind that there are a few key differences between 401(k) plans and your 403(b) or 457(b) plan. Some parts of this guide — including details about how 401(k) plans are taxed — may not apply to other types of retirement accounts.
Is there a penalty for exceeding the 401(k) contribution limit?
It might sound strange, but there can be penalties for exceeding the 401(k) contribution limit for a calendar year.
Because 401(k) contributions are made with pre-tax dollars, they’re not included in your income. By exceeding your 401(k) contribution limits for 2024, you’re essentially underpaying your income taxes.
If you exceed your 401(k) contribution in a calendar year, the IRS may impose a 6% penalty for each year your overcontribution stays in your retirement account. Withdrawing overcontributions — and related earnings — can help you avoid this penalty.
You can also choose to apply overcontributions to the next year, but those excess contributions will still be subject to a 6% penalty.
If you overcontribute to your 401(k), the best thing you can do is notify your plan administrator. If you notify your plan administrator before the tax filing deadline, you can have excess contributions returned and avoid penalties.
How much should you contribute to a 401(k)?
It’s up to you to decide how much you can afford to contribute to your 401(k). The more you can contribute, the better prepared you’ll be for your golden years.
Before you decide how much you want to contribute to your 401(k), here are a few things to consider:
- Your monthly income
- Your expenses
- Your employer match
- Your retirement savings goals
While saving more can help you out in the long run, you still need enough money for your monthly bills and entertainment expenses. Your monthly income is a big factor in how much you can contribute.
You may want to consider maximizing your employer match. If your employer matches up to 5% of your salary, you’ll contribute that amount to maximize your match.
If you have a 401(k) plan from a previous employer, you may be able to roll it over to your new 401(k) or retirement plan. A 401(k) rollover makes it easier to manage and monitor your retirement savings since they’re all in one place.
If you have questions about your 401(k) plan details or how much you should contribute, talk to your plan administrator or financial advisor.
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