Can I Add Money to My 401k? An Overview of Your Options

A 401(k) plan is a retirement savings vehicle offered by employers, allowing employees to contribute a portion of their wages into an investment account. These plans provide a framework for long-term savings with tax advantages.

Contributing Through Your Paycheck

The primary method for adding funds to a 401(k) is through regular payroll deductions, known as salary deferrals. Employees elect to have a specific amount or percentage of their gross pay contributed directly to their 401(k) account before they receive their net pay. This automated process helps ensure consistent saving without requiring manual transfers.

Contributions can generally be made in two primary ways: pre-tax or Roth. With pre-tax 401(k) contributions, money is deducted from your paycheck before federal income taxes are calculated, which can reduce your current taxable income. While these contributions grow tax-deferred, withdrawals in retirement will be subject to income tax.

Conversely, Roth 401(k) contributions are made with after-tax dollars, meaning these funds have already been subject to income tax. The significant advantage of a Roth 401(k) is that qualified withdrawals in retirement, including both contributions and earnings, are entirely tax-free. The choice between pre-tax and Roth contributions is typically made during the initial enrollment process or when adjusting your contribution settings, often through your employer’s plan administrator.

Beyond employee salary deferrals, employers often contribute to 401(k) plans through matching contributions or profit-sharing arrangements. Employer matching involves the company adding funds to your account based on how much you contribute, often up to a certain percentage of your salary.

Profit-sharing contributions are another form of employer funding, where the company contributes a portion of its profits to employee 401(k) accounts, regardless of employee contributions. Both matching and profit-sharing contributions are typically made on a pre-tax basis into your account, meaning they are taxed only upon withdrawal in retirement. These employer contributions represent a substantial way money is accumulated within the 401(k) plan.

Transferring Funds from Other Retirement Accounts

Individuals can also add money to their 401(k) by consolidating funds from other qualified retirement accounts through a process called a rollover. A rollover involves moving existing retirement savings from one account to another without incurring immediate taxes or penalties, provided specific IRS rules are followed. This method allows for the consolidation of retirement assets into a single plan.

Common sources for rollovers into a current 401(k) include funds from previous employers’ 401(k)s or 403(b) plans. When changing jobs, many individuals choose to move their old workplace retirement funds into their new employer’s 401(k) for simplified management. Funds from personal Traditional IRA accounts can also be rolled into a 401(k), offering a way to move tax-deferred assets into a workplace plan.

Rolling over funds from a Roth IRA into a Roth 401(k) is also possible, allowing after-tax contributions and tax-free growth to continue within the employer-sponsored plan. It is important to note that if any pre-tax money from a Traditional 401(k) or IRA is rolled into a Roth 401(k), it is considered a Roth conversion and will be subject to income tax in the year of conversion. Furthermore, for tax-free qualified withdrawals from a Roth account, the account must generally be held for at least five years.

There are two primary methods for executing a rollover: a direct rollover or an indirect rollover. A direct rollover, also known as a trustee-to-trustee transfer, is the safest and most common method. In this approach, the funds are transferred directly from the old plan administrator or IRA custodian to your new 401(k) plan administrator, bypassing your personal possession of the funds. To initiate a direct rollover, you typically contact both the previous financial institution and your current 401(k) plan administrator to complete the necessary forms and arrange the transfer.

An indirect rollover, or 60-day rollover, involves the funds being distributed directly to you before you redeposit them into the new 401(k) plan. This method is less common due to its risks and strict rules. You must redeposit the full amount into a new qualified retirement account within 60 days of receiving the distribution to avoid potential taxes and penalties. If federal income tax withholding of 20% is applied to the distribution from a 401(k), you must make up that 20% from other sources to roll over the full amount, as the withheld portion is not sent to you.

Annual Contribution Limits

The Internal Revenue Service (IRS) establishes annual limits on the amounts that can be contributed to a 401(k) plan, which are subject to periodic adjustments. These limits apply specifically to employee contributions, also known as elective deferrals, encompassing both pre-tax and Roth contributions combined. Adhering to these limits avoids potential penalties.

For 2025, the employee elective deferral limit is $23,500, which is the maximum amount an individual can contribute from their salary to a 401(k) plan. This limit applies across all 401(k) plans if an individual participates in more than one during the year. Individuals aged 50 and over by the end of the calendar year are eligible to make additional contributions, known as catch-up contributions.

The standard catch-up contribution limit for 2025 is $7,500, allowing eligible individuals to contribute up to $31,000 in total elective deferrals. However, for those aged 60 to 63, a higher catch-up limit of $11,250 applies in 2025, increasing their total possible deferral to $34,750. These additional contributions are designed to help older workers boost their retirement savings as they approach retirement age.

Beyond employee contributions, there is an overall 401(k) contribution limit, defined by Internal Revenue Code Section 415. This limit includes all contributions made to a participant’s account in a single year, encompassing employee elective deferrals (including catch-up), employer matching contributions, and employer profit-sharing contributions. For 2025, the total amount of contributions, from all sources, that can be added to a participant’s 401(k) account cannot exceed $69,000.

For those aged 50 and over, including catch-up contributions, the overall limit increases to $76,500. Exceeding these limits can lead to excess contributions, subject to income tax and potential penalties if not corrected. Consult the latest IRS publications or your plan administrator for current limits, as they change annually.

Adjusting and Monitoring Contributions

The amount you contribute to your 401(k) is not fixed and can typically be adjusted throughout the year to align with your financial goals or changing circumstances. This flexibility allows you to increase your savings rate as your income grows or decrease it if unexpected expenses arise.

Changes to your contribution amount can often be initiated through your employer’s human resources (HR) department or payroll office. These departments usually serve as the initial point of contact for employees seeking to modify their payroll deductions. They can provide the necessary forms or direct you to the appropriate online platform.

Many 401(k) plan administrators offer an online portal or website that provides self-service options for managing your contributions. Through these secure platforms, you can typically navigate to a section dedicated to contribution settings, where you can adjust your deferral percentage or dollar amount. Most plans allow changes to be made at any time, though some may impose specific windows or limits on how frequently adjustments can occur within a year.

Monitoring your contributions and the overall performance of your 401(k) account is equally important. Regularly reviewing your pay stubs is a simple way to confirm that the correct deductions are being made and accurately reflected. This proactive check ensures that your intended contributions are indeed being channeled into your retirement account.

Accessing online account statements through your plan administrator’s website provides a more comprehensive view of your retirement savings. By logging in, you can typically review your current balance, track your contribution history, and assess the investment performance of your chosen funds. Annual statements also offer a detailed summary of your account activity, including all contributions, withdrawals, and investment returns over the year.