What Are the 401k Contribution Limits?

A 401(k) plan is a feature of a qualified profit-sharing plan that allows employees to contribute a portion of their wages to individual accounts. These employer-sponsored retirement savings vehicles are a common way for individuals to accumulate funds for their post-employment years. The Internal Revenue Service (IRS) establishes annual limits on the amounts that can be contributed. These limits are periodically updated through cost-of-living adjustments to account for inflation, ensuring the real value of the savings potential is maintained over time.

Employee Contribution Limits for 2024

For the 2024 tax year, the maximum amount an employee can contribute to their 401(k) is $23,000. This figure, known as the elective deferral limit, applies to the sum of all employee contributions. The $23,000 cap encompasses both traditional pre-tax contributions and any Roth 401(k) contributions. Pre-tax contributions reduce your taxable income for the year, while Roth contributions are made with after-tax dollars, allowing for tax-free withdrawals in retirement.

This limit is applied on a per-person basis, not a per-plan basis. If an employee works for more than one company during the year and participates in each employer’s 401(k) plan, they are personally responsible for ensuring their total contributions across all plans do not exceed the $23,000 threshold.

Catch-Up Contributions for Individuals Age 50 and Over

Savers who are age 50 or older have the opportunity to contribute more to their 401(k) plans. For 2024, these individuals can make an additional “catch-up” contribution of $7,500. This amount is supplemental to the regular $23,000 employee deferral limit, bringing the total potential contribution for this age group to $30,500 for the year.

This provision is designed to help older workers accelerate their retirement savings. The ability to make these contributions is a feature that must be permitted by the specific 401(k) plan document.

A recent legislative change, the SECURE 2.0 Act, introduced a new rule that would require catch-up contributions for high-income earners to be made on a Roth (after-tax) basis. The IRS has delayed the implementation of this requirement. The rule is now scheduled to take effect for taxable years beginning after December 31, 2025.

The Overall Contribution Limit

Beyond the limits on employee deferrals, there is a separate, larger limit that governs the total amount of money that can be added to a participant’s 401(k) account in a single year. Known as the annual additions limit under Internal Revenue Code Section 415, this cap for 2024 is $69,000. This figure represents the sum of all contributions from all sources into a participant’s account.

This overall limit includes the employee’s own contributions, which are the elective deferrals up to the $23,000 limit (or $30,500 if eligible for catch-up contributions). It also includes all contributions made by the employer on the employee’s behalf, such as matching contributions and non-elective or profit-sharing contributions.

For example, if a 45-year-old employee contributes the maximum $23,000 to their 401(k) in 2024, their employer could contribute up to an additional $46,000 before the total $69,000 limit is reached. For an employee aged 50 or over who contributes their maximum of $30,500, the total combined limit increases to $76,500 for 2024. The total annual additions cannot exceed 100% of the participant’s compensation.

Handling Excess Contributions

Contributing more than the legal limit to a 401(k) can result in negative tax consequences if not addressed properly. These excess deferrals are subject to double taxation; they are taxed in the year they are contributed and then taxed again when they are eventually withdrawn from the account. To avoid this penalty, the over-contribution must be corrected in a timely manner.

The process for correction involves notifying the plan administrator about the excess amount. The participant must request a “corrective distribution” to have the excess funds, plus any investment earnings attributable to those funds, returned to them.

The deadline for receiving this corrective distribution is April 15 of the year following the year the excess contribution was made. For example, an excess contribution made in 2024 must be distributed by April 15, 2025. The distributed excess amount is then reported as taxable income for the year the contribution was made, and the associated earnings are reported as income for the year they are distributed.