Does the 401k Contribution Limit Include Employer Match?

401(k) plans have annual contribution limits set by the Internal Revenue Service (IRS). A frequent area of uncertainty for savers is understanding how employer contributions, such as matching funds, are treated in relation to these government-mandated limits.

The Employee Elective Deferral Limit

The elective deferral limit does not include any contributions made by an employer; it applies only to the money an employee contributes from their salary. For 2025, the IRS has set this employee contribution limit at $23,500. This figure represents the total combined amount you can contribute to both traditional pre-tax and Roth 401(k)s.

This personal contribution ceiling applies across all 401(k) plans an individual might have. If you work for more than one employer during the year, your total elective deferrals to all plans cannot exceed the $23,500 limit.

For savers who are age 50 or older, the rules allow for additional contributions known as “catch-up contributions.” For 2025, this additional amount is $7,500, allowing those eligible to contribute a total of $31,000 from their own salary. A new provision starting in 2025 allows those aged 60 to 63 to make an even larger catch-up contribution of up to $11,250, if their plan documents permit it.

The Overall Annual Additions Limit

A separate, much higher limit governs the total amount of money that can be added to a 401(k) account from all sources combined. This is the annual additions limit under Internal Revenue Code Section 415. For 2025, this overall limit is $70,000. This cap is calculated by summing three types of contributions made to your account during the year.

The first component is the employee’s own elective deferrals. The second component includes all contributions made by the employer, which encompasses matching contributions as well as any non-elective or profit-sharing contributions. The third component is any after-tax contributions an employee makes, which are different from Roth deferrals and only available if the specific plan allows for them.

To illustrate, consider an employee under age 50 who contributes the maximum of $23,500 to their 401(k) in 2025. If their employer provides a matching contribution of $10,000 and a profit-sharing contribution of $5,000, the total annual addition to the account would be $38,500. This amount is well below the $70,000 overall limit for 2025, demonstrating how both employee and employer contributions fit within the regulatory structure.

Correcting Excess Contributions

Exceeding the elective deferral limit can lead to negative tax consequences if not handled correctly, and it is the employee’s responsibility to fix. If you contribute more than the annual limit, you must notify your plan administrator. You will need to request a corrective distribution of the excess amount along with any investment earnings it has generated.

This corrective action must be completed by the tax filing deadline for the year the excess contribution was made, which is typically April 15 of the following year. When the excess deferral is returned on time, the excess amount is included in your taxable income for the year it was contributed. The associated earnings are then reported as taxable income for the year in which they are distributed.

Failing to correct an excess contribution before the deadline results in double taxation. The excess amount is taxed in the year it was contributed and will be taxed again when you eventually withdraw it from your 401(k). This penalty makes it important to monitor your contributions throughout the year, especially if you change jobs. Any overage related to the overall annual additions limit is the employer’s responsibility to correct.