What is the Max 401(k) Contribution for 2022-2023?

The IRS caps how much you and your employer can put into a 401(k) each year, and understanding the guidelines can help you plan your contributions accordingly. Here’s a rundown of 401(k) contribution limits for 2023.

Max 401(k) contribution 2022 vs. 2023

401(k) contribution limits are $22,500 in 2023, but people who are 50 or older can throw in an extra $7,500 per year. Here’s a quick look at how these numbers compare to 2022.

Maximum 401(k) Contributions Limits

• Under 50: $20,500 in 2022; 22,500 in 2023

• Over 50: $27,000 in 2022; $30,000 in 2023

Traditional 401(k) vs. Roth 401(k) contribution limits 2022 vs. 2023

There are two different types of 401(k) plans: traditional and Roth. Some employers offer both types of plans. They have the same contribution limits, but the type of money you contribute is different. If you have both types of plans, the limit applies to all of your contributions to all of your plans. For example, you couldn’t contribute $22,500 each to your 401(k) and Roth 401(k). 

Traditional 401(k) plans

This account is funded with pre-tax dollars. Most participants contribute through automatic payroll deductions. 

Your funds then grow on a tax-deferred basis, so you won’t owe any taxes on the money in your account until you make withdrawals after age 59 1/2. The money you put in is also tax deductible. That means your contributions lower your taxable income today. For example, if your income this year was $60,000 annually and you contributed $10,000 of your income to your 401(k), the IRS would only tax you on $50,000 of income. 

Roth 401(k) plans

These retirement accounts are funded with after-tax dollars, which means you’ll have tax-free withdrawals of contributions and earnings if you’ve held the account for a minimum of five years and are at least 59½. It could be a good option if your tax bracket is lower today than you think it’ll be in retirement.

With that said, 401(k)s have much higher contribution limits when compared to individual retirement accounts (IRAs). That includes:

401(k) employer matching limits

If your employer is willing to match some of your 401(k) contributions, that’s good news for your nest egg. It’s essentially free money. And thanks to the magic of compounding, it could seriously boost your retirement balance in the long run. The longer you’re invested, the more time your money has a chance to grow. 

An added bonus is that employer 401(k) matches don’t count toward the annual contribution limits mentioned above.  

It can be a nice employee benefit, but there is a ceiling. Total annual 401(k) contributions in 2023 — from employers and employees combined — can’t exceed $66,000. For people who are 50 or older, that number jumps to $73,500.

401(k) catch-up contribution limits

As you’ve probably gathered, people who are 50 and over get a little more leeway with retirement contributions. Catch-up contributions let those in this camp contribute beyond the standard limit, whether they’re behind on their savings target or not. It gives them the opportunity to supercharge their nest egg a little before retiring. Catch-up contributions apply to lots of retirement plans, including:

• 401(k)s

• IRAs

• 403(b)s

• 457(b)s

To make 401(k) catch-up contributions, you must be at least 50 at the end of the calendar year. Just be sure to check if your plan permits it. If so, you can contribute an extra $7,500 in 2023. 

401(k) contribution limits for highly compensated employees

401(k) contributions work a little differently for high earners. In the eyes of the IRS, you’re considered a highly compensated employee (HCE) if either of the following are true:

• You receive at least $150,000 in compensation in 2023. You might also be classified as a highly compensated employee if your employer ranks you in the top 20% of employees by compensation.

• During the last year, you’ve had an ownership stake in the company that exceeds 5%.

Average contributions made by HCEs can’t be more than 2% higher than average contributions made by other employees. All together, HCE contributions can’t be more than two times the percentage of non-HCEs in a company. Contribution limits for highly compensated employees depend largely on participation rates and how much non-HCEs are contributing to the plan. 

It’s up to the company to monitor their HCEs.

Exceeding the 401(k) contribution limits 

If you accidentally overfund your 401(k), don’t panic. You can contact your plan administrator and request something called a corrective distribution. The excess contribution (plus any earnings) should be returned back to you. Just know that money will count as taxable income for the year. Those who are under 59½ will also be on the hook for a 10% early withdrawal penalty.

If you fail to button things up before filing your tax return for that year, you’ll be hit with an extra 6% penalty. You’ll have to pay that fee every year until you set things right. Another option is to apply your excess contribution to the following year. Just keep in mind that you’ll probably still have to pay that 6% penalty.

How to save more for retirement

Many experts recommend that you put away 10% to 15% of your income for retirement, which can include employer matching. If that number feels out of reach, start smaller and set the intention to increase your contributions by 1% or 2% every year — even small contributions can add up over time. 

Beyond that, consider funneling cash windfalls like raises, bonuses, and tax refunds into your retirement accounts. Finding ways to save money can free up more cash for your future. That can include everything from picking up a side hustle to bargaining down your bills to negotiating a pay raise.

Understanding 401(k) contribution limits can help you set a regular savings target that works for your budget. What matters most is getting in the habit of saving — and sticking with it.

This content is for informational purposes only and is not intended as financial advice. The views expressed are generalized and may not be appropriate for everyone. Acorns is not engaged in rendering any tax, legal, or accounting advice. Please consult with a qualified professional for this type of advice.

Contributors are not affiliated with Acorns Advisers, LLC. and do not provide investment advice to Acorns’ clients.