Do 401(k) Contribution Limits Include Employer Match?
Understand the key distinction between the 401(k) limit for your own contributions and the separate, higher limit that includes your employer's match.
A 401(k) plan is a retirement savings vehicle offered by many employers, allowing workers to invest a portion of their paycheck. These accounts are governed by Internal Revenue Service (IRS) regulations that dictate how much money can be contributed annually. There are separate limits for what an employee can contribute and for the total amount that can be added to the account, which includes employer funds. This distinction clarifies how contributions like an employer match are treated.
The Employee Elective Deferral Limit
The primary limit that most employees are familiar with is the elective deferral limit. This is the maximum amount of money an employee can direct from their salary into their 401(k) account each year. For 2025, the IRS has set this limit at $23,500. This cap applies to the combined total of an employee’s contributions, whether they are made to a traditional pre-tax 401(k) or a Roth 401(k).
This limit is personal to the employee and follows them across all jobs within a calendar year. If an employee works for two different companies in the same year, their total elective deferrals to both 401(k) plans cannot exceed the annual maximum. It is the employee’s responsibility to monitor their contributions to ensure they do not go over this ceiling.
To help individuals nearing retirement increase their savings, the tax code allows for catch-up contributions. Individuals age 50 and over are permitted to contribute an additional amount on top of the standard elective deferral limit. For 2025, this catch-up amount is $7,500, which allows an eligible employee to contribute a total of $31,000. A new rule for 2025 allows those aged 60 to 63 to make a higher catch-up contribution of $11,250, if their plan permits it.
The Overall Annual Additions Limit
A separate, much higher limit also applies to 401(k) plans, known as the overall annual additions limit. This limit caps the total amount of contributions that can be made to a participant’s account in a single year from all sources. For 2025, this limit is $70,000.
The annual additions limit is the sum of an employee’s elective deferrals, any employer matching contributions, and any employer nonelective contributions, such as profit-sharing payments. For example, if an employee under 50 contributes their maximum of $23,500, their employer can still contribute up to an additional $46,500 to their account that year. This is as long as the total does not exceed $70,000 or 100% of the employee’s compensation.
Employer matching funds do not count against the employee’s personal elective deferral limit; instead, they fall under the broader annual additions umbrella. Catch-up contributions are treated separately and are not subject to this $70,000 annual additions limit. This means an individual eligible for catch-up contributions can exceed the $70,000 cap. For instance, in 2025, someone age 50 to 59 could have a total of $77,500 contributed to their account. For those aged 60 to 63, this potential total increases to $81,250. Allocations of forfeitures, which are unvested funds from former employees, also count toward the overall annual additions cap.
How Different Contribution Types Are Counted
Some 401(k) plans may also permit employees to make voluntary after-tax contributions that are not designated as Roth contributions. These are less common but provide a way to save more for retirement beyond the standard deferral limit. These voluntary after-tax amounts are subject to the overall annual additions limit. This means they are bundled together with employee deferrals and all employer contributions, and the total of these combined sources cannot exceed the annual additions ceiling for the year.
Correcting Excess Contributions
If an employee contributes more than the elective deferral limit in a calendar year, it is considered an excess contribution and must be corrected. The employee should notify their employer or the plan administrator of the overage. The plan is then required to distribute the excess amount, along with any investment earnings it generated, back to the employee.
To avoid negative tax consequences, this corrective distribution must occur by the tax-filing deadline for the year in which the excess contribution was made, typically April 15 of the following year. When corrected in a timely manner, the distributed excess amount is treated as taxable income in the year it was contributed. The associated earnings are taxed in the year they are distributed.
Failing to correct an excess contribution by the deadline results in double taxation. The excess amount is taxed in the year it was contributed and again when it is eventually distributed from the plan.