Can I Contribute 100% of My Salary to My 401k?
Learn the practical and regulatory reasons you can't contribute an entire salary to a 401k and how the real maximum is determined by multiple factors.
The goal of aggressively saving for retirement often leads to the question of how much of a salary can be directed into a 401(k) plan. While the ambition to contribute an entire salary is appealing, federal regulations and practical payroll realities make it impossible. A combination of Internal Revenue Service (IRS) limits and mandatory tax withholdings prevents a full 100% contribution. However, it is possible to contribute a very high percentage of your pay, and understanding the rules is the first step to maximizing your savings.
The Annual Employee Contribution Limit
The most direct constraint on 401(k) savings is the annual employee contribution limit set by the IRS under Internal Revenue Code Section 402. This regulation dictates the maximum dollar amount an individual can defer from their salary each year. For 2025, this limit is $23,500, which applies to the total of all traditional pre-tax and Roth 401(k) contributions.
This limit is personal to the individual, not the employer. If an employee works for two different companies during the year, their total contributions to both 401(k) plans cannot exceed the annual limit. It is the employee’s responsibility to monitor their contributions to avoid excess deferrals, which can result in tax penalties.
The tax code provides for catch-up contributions for individuals age 50 and over. For 2025, this additional amount is $7,500, allowing for a total contribution of $31,000. A separate, higher catch-up limit of $11,250 applies to those aged 60 through 63, allowing them to contribute a total of $34,750 in 2025.
These contribution limits are adjusted periodically for cost-of-living increases. The limits apply to the combined total of all contributions to 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan.
Impact of Mandatory Payroll Deductions
Beyond IRS contribution limits, payroll mechanics also make it impossible to contribute 100% of your gross salary. Before any 401(k) deferrals are calculated, employers must withhold mandatory taxes from an employee’s paycheck.
The primary deductions are Federal Insurance Contributions Act (FICA) taxes, which combine a 6.2% Social Security tax and a 1.45% Medicare tax, for a total of 7.65%. The Social Security tax applies up to an annual income level of $176,100 for 2025, while the Medicare tax applies to all earnings.
In addition to FICA, employers withhold federal, state, and local income taxes based on the employee’s Form W-4. Other deductions, such as premiums for employer-sponsored health insurance or disability coverage, are also taken out before 401(k) contributions. Because these amounts are deducted from gross pay first, the remaining balance is the maximum pool of funds available for a 401(k) contribution.
The Overall Contribution Limit
Separate from an employee’s personal deferrals, the IRS imposes an “overall” limit on total annual contributions to a 401(k) account, governed by Internal Revenue Code Section 415. This cap includes the employee’s contributions, any employer matching, and other employer inputs like profit-sharing. For 2025, the overall limit is $70,000.
Employee catch-up contributions for those age 50 and over are not counted against this limit. An individual age 50 or over could have total additions reaching $77,500 in 2025, which is the $70,000 overall limit plus a $7,500 catch-up.
This limit is relevant for employees who receive generous employer contributions. For example, if an employee under age 50 contributes the maximum of $23,500 in 2025, their employer could contribute up to an additional $46,500 through matching and profit-sharing before hitting the $70,000 ceiling.
The Annual Compensation Limit
A final regulation that can affect high-income earners is the annual compensation limit under Internal Revenue Code Section 401. This rule caps the amount of an employee’s pay that can be used for calculating 401(k) contributions. For 2025, this limit is $350,000, meaning any employee earning more will have contributions calculated as if their salary were $350,000.
This limit directly impacts how employer matching contributions are determined for highly paid employees. For instance, if an employee earning $450,000 works for a company with a 5% match, the company must use the $350,000 limit. This results in a maximum employer match of $17,500.
This rule prevents highly compensated employees from receiving disproportionately large employer contributions. By applying contribution formulas to a standardized, capped amount of earnings, it helps ensure the plan does not overly favor the highest earners.