Can I Have Two 401k Plans? Contribution Limits & Rules

A 401(k) plan serves as a foundational employer-sponsored retirement savings vehicle, allowing individuals to contribute a portion of their pre-tax or after-tax (Roth) income into investments that grow tax-deferred or tax-free. These plans are designed to encourage long-term savings for retirement, often complemented by employer contributions like matching funds or profit-sharing. Many individuals encounter questions about managing these accounts, particularly when their employment situations change or they hold multiple plans.

The Possibility of Multiple 401(k) Plans

It is common for individuals to accumulate more than one 401(k) plan over their careers. This frequently occurs when someone changes jobs and leaves their existing 401(k) account with their former employer’s plan administrator. The funds remain invested in the old plan, even though no new contributions are being made.

Another scenario involves individuals working for multiple employers concurrently, where each employer offers its own 401(k) plan. For instance, someone might work a full-time job with one employer and a part-time job with another, both providing retirement benefits. Each plan operates independently, allowing contributions to be made to both simultaneously.

Contribution Limits Across Multiple 401(k) Plans

When participating in multiple 401(k) plans, understanding the applicable contribution limits is essential for compliance with Internal Revenue Service (IRS) regulations. Two primary limits govern contributions: the employee elective deferral limit and the overall contribution limit. These limits are adjusted annually for cost-of-living increases.

The employee elective deferral limit, outlined in Internal Revenue Code Section 402(g), applies to an individual’s pre-tax and Roth contributions across all 401(k) plans in which they participate during a calendar year. For 2025, this limit is $23,500. For instance, if an individual works for two employers, they might contribute $15,000 to one plan and $8,500 to another, totaling $23,500 for the year.

Individuals aged 50 and over are eligible to make additional “catch-up” contributions beyond the standard elective deferral limit. For 2025, the general catch-up contribution amount is $7,500. This means participants aged 50 and older can contribute up to $31,000 in total elective deferrals across all their 401(k) plans ($23,500 + $7,500). Furthermore, a special “super” catch-up contribution applies for individuals aged 60, 61, 62, and 63, allowing an additional $11,250 in 2025, if the plan permits. This allows individuals in that age bracket to contribute up to $34,750 ($23,500 + $11,250) in 2025.

The overall contribution limit, specified in Internal Revenue Code Section 415(c), governs the total amount that can be contributed to a participant’s account in a single 401(k) plan from all sources, including employee elective deferrals, employer matching contributions, employer profit-sharing contributions, and allocations of forfeitures. For 2025, this limit is $70,000, or 100% of the employee’s compensation, whichever is less. This limit applies per plan, meaning that contributions to each separate 401(k) plan are subject to this cap independently. Employer contributions do not reduce an employee’s personal elective deferral limit, but they do count towards this higher overall plan limit.

Managing Funds from Previous 401(k) Plans

Upon leaving an employer, individuals have several options for managing the funds held in their former employer’s 401(k) plan. Each choice has distinct implications regarding accessibility, investment flexibility, and potential costs.

One option is to leave the funds in the old 401(k) plan. This requires no immediate action and the money continues to grow tax-deferred. Some benefits include potential access to institutional-class investment options and federal creditor protections. However, drawbacks can include limited investment choices, higher administrative fees as a former employee, or the account becoming forgotten and unmanaged over time.

Alternatively, funds can be rolled over into a new employer’s 401(k) plan, if the new plan permits such rollovers. This consolidates retirement savings into one account, simplifying management and providing a holistic view of the portfolio. The new plan’s features, investment options, and fee structure should be reviewed to ensure they align with an individual’s financial strategy.

A common choice is to roll over the funds into an Individual Retirement Account (IRA), which can be either a Traditional IRA or a Roth IRA. Rolling a traditional 401(k) into a Traditional IRA maintains the tax-deferred status, with taxes only due upon withdrawal in retirement. Rolling into an IRA often provides a wider array of investment options and greater control over the account, along with potential for lower fees.

If converting a traditional 401(k) to a Roth IRA, the amount rolled over is generally considered taxable income in the year of conversion, but future qualified withdrawals will be tax-free. Direct rollovers are recommended to avoid tax withholdings and penalties. If a check is issued to the individual, it must be deposited into the new retirement account within 60 days to avoid being considered a taxable distribution and potentially incurring early withdrawal penalties.

Cashing out the 401(k) is often ill-advised due to financial repercussions. Withdrawals made before age 59½ are typically subject to ordinary income tax and a 10% early withdrawal penalty on the distributed amount. For example, a $25,000 withdrawal could result in substantial taxes and penalties, significantly reducing the amount received. This action also removes funds from tax-advantaged growth, potentially undermining long-term retirement security.