Comprehensive Guide to 401k Contribution Limits
Discover essential details about 401k contribution limits, including annual caps, catch-up options for employees over 50, employer contribution rules, and total contribution ceilings. Learn how to maximize your retirement savings within IRS guidelines. Stay informed with clear, concise insights into 401k plans to plan your future better.
Understanding 401k Contribution Limits
A 401k plan is an employer-sponsored retirement savings program allowing employees to contribute part of their salary before taxes are deducted. These contributions help build your retirement funds efficiently. However, there are specific annual limits on how much you can contribute. Here's what you need to know:
Employee Contribution Limits for 2017–2018
The maximum employee contribution in 2017 was approximately $18,000, which increased to about $18,500 in 2018. This limit applies to combined pre-tax and post-tax contributions across all your 401k accounts. If you have multiple accounts, total contributions cannot exceed these thresholds.
However, contributions to other retirement plans are excluded from this limit.
Catch-up Contributions for Employees Over 50
To support those nearing retirement, employees over 50 can contribute additional amounts. Besides the standard limit of $18,500 in 2018, they can add a catch-up contribution of up to $6,000, enhancing their savings potential.
Employer Contributions
Since 401k plans are employer-sponsored, there are limits on contributions made by employers as well. These limits are generally higher than employee limits. Employer contributions include matching and elective contributions, irrespective of employee contribution levels. In 2018, the employer contribution cap was approximately $36,500, up from about $36,000 in 2017.
Total Contribution Limits for 2017–2018
The IRS sets the maximum total contributions, combining employee, employer, and all other contributions. For 2018, this total is around $55,000, with an additional catch-up contribution limit of approximately $61,000. These limits apply to all accounts under your name, including multiple 401k plans.
However, highly compensated employees face stricter contribution rules to prevent disproportionate advantages. They can plan their contributions accordingly to optimize retirement savings within these constraints.
Note:
The information provided is compiled from research, data, and expert insights. Due to evolving financial regulations and market conditions, details may change. We advise consulting a financial professional before making any contribution decisions, as the website’s content is for informational purposes only and may not reflect the latest updates.
