What Is the 402(g) Contribution Limit?

The 402(g) contribution limit is a cap set by the Internal Revenue Service (IRS) on the amount an employee can contribute to certain workplace retirement plans within a calendar year. This limit applies to an employee’s own contributions, known as elective deferrals, which are deducted from their paycheck. The regulation defines the maximum tax-advantaged savings an individual can accumulate through these retirement accounts annually.

Understanding the Annual Contribution Limit

The Internal Revenue Code section 402(g) establishes the maximum amount of elective deferrals an individual can contribute to their retirement accounts each year. For 2025, the IRS has set this limit at $23,500. This annual cap is subject to cost-of-living adjustments, meaning it can change from year to year based on inflation, and applies to contributions made to 401(k)s, 403(b)s, and the federal government’s Thrift Savings Plan.

The 402(g) limit is an aggregate total for the individual, not per plan. If an employee contributes to a 401(k) with one employer and a 403(b) with another during the same year, their combined contributions cannot exceed the single annual limit. For 2025, the total deferrals across both plans cannot be more than $23,500.

The cap applies strictly to employee elective deferrals, which include both pre-tax and designated Roth contributions made from an employee’s salary. The limit does not include other types of contributions, such as employer matching funds, profit-sharing, and any after-tax contributions not designated as Roth contributions.

Special Provisions for Catch-Up Contributions

The tax code includes provisions for additional contributions to help workers nearing retirement. Individuals age 50 or older during the calendar year are eligible to make catch-up contributions above the standard 402(g) limit. For 2025, the catch-up contribution limit for plans like 401(k)s and 403(b)s is $7,500.

This amount is a separate limit and is not included in the general 402(g) calculation. An eligible individual in 2025 could contribute the standard $23,500 plus an additional $7,500, for a total of $31,000. These catch-up contributions can be made as either pre-tax or Roth deferrals, depending on the plan’s rules.

The SECURE 2.0 Act introduced a higher catch-up limit for those aged 60 through 63. For 2025, this enhanced catch-up amount is $11,250, allowing individuals in this age bracket to save more. The standard catch-up limit of $7,500 applies to those aged 50-59 and again at age 64 and older.

Consequences of Exceeding the Limit

When an individual’s elective deferrals surpass the annual 402(g) limit, the amount above the cap is known as an “excess deferral.” If this excess is not corrected within the specified timeframe, it leads to double taxation, which can diminish the value of the retirement savings.

The excess amount is first taxed in the year it was contributed because it must be included in the individual’s gross income for that year. The same amount is taxed a second time when it is distributed from the retirement account. This double taxation occurs because the excess was not corrected and remained part of the account’s assets.

For example, if a 40-year-old employee contributed $25,000 in 2025, they would have a $1,500 excess deferral. If uncorrected, that $1,500 is included in their 2025 taxable income. When that same $1,500 is withdrawn from the 401(k) years later, it will be taxed again as part of the distribution.

Correcting Excess Contributions

There is a process for fixing an excess deferral and avoiding double taxation. The employee must identify the excess, notify their plan administrator, and receive a corrective distribution by the deadline, which is April 15 of the year following the contribution. For an excess contribution made in 2025, the deadline is April 15, 2026.

The excess deferral amount is included in the employee’s gross income for the year the contribution was made. Any investment earnings generated by the excess amount must also be withdrawn and are taxable in the year they are distributed. A timely correction prevents the 10% early distribution tax from applying to the withdrawal.