California 401k Maximum Contribution Limits

A 401(k) plan allows employees to contribute a portion of their wages to individual, tax-advantaged retirement accounts. The amount an individual can contribute each year is subject to specific caps. This article clarifies the maximum 401(k) contribution amounts for individuals in California, detailing the various limits and the state’s tax rules that apply to these savings plans.

Federal Employee Contribution Limits

The Internal Revenue Service (IRS) establishes the limit on how much an employee can contribute to their 401(k) from their salary each year, as defined under Internal Revenue Code Section 402. For 2025, the maximum amount an employee can defer from their paycheck into a 401(k) is $23,500. This limit applies to the total of all employee elective deferrals, which includes both traditional pre-tax and any designated Roth 401(k) contributions. It is the employee’s responsibility to monitor these contributions, as the limit applies to their total contributions across all employers for the year.

The tax code also provides for catch-up contributions under Internal Revenue Code Section 414. Individuals who are age 50 or over at any point during the calendar year can contribute an additional amount above the standard employee limit. For 2025, the catch-up contribution amount is $7,500, meaning an employee aged 50 or older can contribute a total of $31,000.

A newer provision exists for those closer to retirement. For individuals who attain ages 60, 61, 62, or 63, the catch-up contribution limit for 2025 increases to $11,250. This allows these specific age groups to save more aggressively. An eligible individual in this age bracket could contribute a total of $34,750 in 2025.

California’s Tax Treatment and Conformance

California’s tax treatment of 401(k) contributions generally aligns with federal law, with a notable exception for catch-up contributions. The state conforms to the standard federal limit for employee salary deferrals, so these contributions reduce both federal and state taxable income. However, California does not conform to the federal tax provisions for catch-up contributions available to individuals age 50 and over.

This means that while an employee’s standard contributions are deducted from their income for California tax purposes, any catch-up contributions do not reduce California taxable income. This additional amount is instead included in the individual’s reported income and remains subject to state income tax for that year.

Overall Contribution Limits Including Employer Funds

A separate, higher limit governs the total amount of money that can be added to a 401(k) account from all sources in a single year. This overall limit is established under Internal Revenue Code Section 415 and is called the “annual additions” limit. For 2025, this total limit is $70,000.

This cap includes the employee’s own contributions, any matching contributions from the employer, and any profit-sharing or other non-elective contributions the employer makes. The sum of all these inputs cannot exceed the annual threshold. An employee’s personal contribution is still capped by the individual salary deferral limit.

This limit is relevant for employees whose employers offer generous matching or profit-sharing plans. For instance, if a 45-year-old employee contributes their maximum of $23,500, their employer could contribute up to an additional $46,500 before the overall $70,000 limit is reached. For those eligible for catch-up contributions, that amount is added on top of the overall limit, so an employee 50 or older could have total additions of up to $77,500 in 2025.

Correcting Excess Contributions

If an employee contributes more than the salary deferral limit for the year, this is an excess deferral that requires corrective action to avoid negative tax consequences. This situation most commonly occurs when an individual changes jobs and contributes to 401(k) plans at both employers without coordinating the total amount. The employee is responsible for identifying an over-contribution and taking steps to fix it.

To correct the error, the employee must notify their plan administrator of the excess amount. The plan is then required to make a “corrective distribution,” returning the excess contribution plus any investment earnings from that money. This action must be completed by April 15 of the year following the year the excess contribution was made. This deadline is not extended even if the individual files for an extension on their personal income tax return.

If the excess contribution and its earnings are distributed by the April 15 deadline, the excess amount is included in the employee’s taxable income for the year the contribution was made. The associated earnings are taxable in the year they are distributed. Failing to correct the excess deferral by the deadline results in double taxation. The excess amount is taxed in the year it was contributed and will be taxed again when it is eventually distributed from the 401(k).