Can I Make a One-Time Contribution to My 401(k)?

Saving for retirement through a 401(k) is a smart way to build long-term financial security, but many wonder if they can make a one-time contribution outside of regular payroll deductions. Whether from a bonus, an inheritance, or a desire to boost savings, it’s important to understand how these plans work before attempting a lump-sum deposit.

The ability to make a single contribution depends on employer policies and IRS regulations. Understanding these rules ensures you maximize savings while staying compliant with tax laws.

Reviewing Your Plan’s Single-Contribution Option

Most 401(k) plans accept contributions only through payroll deductions, meaning you can’t transfer money directly from a bank account. Employers set the rules, and some may not allow lump-sum additions due to payroll system limitations. To determine if your plan permits a one-time contribution, check the summary plan description or ask HR.

Even if allowed, a large one-time contribution usually requires adjusting payroll deductions. Most plans require contributions to be taken from a paycheck, so you may need to temporarily increase your contribution percentage. However, some payroll systems cap the percentage per check, which may require spreading the contribution over multiple pay periods. Confirm with HR to ensure your payroll system can accommodate the full amount.

Annual 401(k) Maximums

The IRS sets annual contribution limits. In 2024, employees can contribute up to $23,000, with an additional $7,500 allowed for those 50 or older under the catch-up provision. These limits apply whether contributions are made as a lump sum or throughout the year.

Employer contributions, such as matching or profit-sharing, do not count toward the individual limit but are subject to a combined cap. In 2024, the total contribution limit—including employee and employer deposits—is $69,000, or $76,500 for those eligible for catch-up contributions. If your employer offers matching or discretionary contributions, track total deposits to avoid exceeding this limit.

Exceeding the limit can create tax complications. Any excess contributions must be withdrawn by April 15 of the following year to avoid double taxation. If not corrected in time, additional penalties may apply. While employers typically monitor limits, those with multiple 401(k) plans must ensure their combined contributions stay within the annual maximum.

Tax Withholding Concerns

Increasing 401(k) contributions for a one-time deposit affects tax withholding. Since contributions are deducted before income taxes, a larger deferral lowers taxable income for that pay period. This can reduce federal and state tax withholding, potentially impacting your tax refund or balance due.

A significant reduction in taxable wages can also affect other paycheck deductions, such as Social Security and Medicare taxes. These payroll taxes still apply to traditional 401(k) contributions and are deducted from gross income. If a large contribution significantly lowers take-home pay, ensure there’s enough left to cover mandatory deductions.

For those receiving bonuses or commissions, making a large 401(k) contribution from these payments introduces additional tax considerations. Employers typically apply a flat 22% federal withholding rate to supplemental income, which may not reflect your actual tax bracket. If most of a bonus is deferred, the remaining taxable portion may not have enough withholding, potentially leading to a tax bill. Adjusting W-4 elections or making estimated tax payments can help manage this risk.