Contribution Limits

Contribution Limits (401(k)) in 2021 vs. 2022

How Much Can You and Your Employer Contribute in 2022?

Contribution Limits: If your employer provides a 401(k) plan, it can one of the most convenient and effective ways to save for retirement. However, while one of the primary benefits of 401(k) plans is that they allow you to automatically deposit a portion of your pay into your account, there are some restrictions on how much you can contribute.

Each year, usually in October or November, the Internal Revenue Service (IRS) reviews and sometimes adjusts the maximum contribution limits for 401(k) plans, individual retirement accounts (IRAs), and other retirement savings vehicles. The IRS issued updates for 2022 in November 2021.

Fundamental Constraints

Contribution Limits

The Internal Revenue Service (IRS) reviews and sometimes adjusts the maximum contribution limits for 401(k) plans, individual retirement accounts (IRAs), and other retirement savings vehicles every year, usually in October or November. The IRS issued updates for 2022 in November 2021.

Contribution limits are the same for 403(b) plans, most 457 plans, and the federal government’s Thrift Savings Plan.

If you have more than one 401(k) account, your total contributions to all of them traditional and Roth must not exceed $20,500. Contributions to other types of retirement accounts, such as IRAs, do not count against your 401(k) contribution limit.

Contributions from Employers

Another significant advantage of participating in a 401(k) plan is that your employer may also contribute to it. Many employers match employee contributions, for example, by adding 50 cents or $1 for every dollar contributed by the employee.

Employers may also make elective contributions regardless of how much or how little the employee contributes, subject to certain limits. The total employer and employee contributions for 2021 limites to $58,000 ($61,000 for 2022), or 100% of employee compensation. The base limit for workers aged 50 and up is $64,500 in 2021 ($67,500 in 2022), which includes the $6,500 catch-up contribution.

Restriction for Highly Paid Employees

If you earn a very high salary, you may be considered a highly compensated employee (HCE), and your contribution limits may be more stringent. The IRS uses the actual deferral percentage (ADP) test to ensure that employees of all compensation levels participate proportionately in their companies’ plans in order to prevent wealthy employees from unfairly benefiting from the tax benefits of 401(k) plans..

Contributions in Exceedance of the 2021 Limits

Evaluating your projected contributions for the coming year and analyzing your contributions at the end of a fiscal year can be critical. If you discover that you have exceeded the 2021 contribution limits, you must notify the IRS by March 1, and any excess deferrals must return to you by April 15.

Limits for 2021 and 2022 Comparison

The chart below, based on data from the Society for Human Resource Management and the Internal Revenue Service, shows how the rules and limits for defined-contribution plans (401(k), 403(b), and most 457 plans) will change in 2021 versus 2022.

Limits on Defined Contribution Plans20222021Change
Employees’ maximum elective deferral$20,500$19,500+$1,000
Employee catch-up contribution (if 50 or older by the end of the fiscal year)$6,500$6,500none
Defined contribution maximum limit, all sources$61,000$58,000+$3,000
Maximum defined contribution limit (if 50 or older by year-end); maximum contribution from all sources, plus catch-up$67,500$64,500+$3,000
Employee compensation cap for contribution calculation$305,000$290,000+$15,000
The compensation threshold for key employees for nondiscrimination testing$200,000$185,000+$15,000
The nondiscrimination testing threshold for highly compensated employees$135,000$130,000+$5,000

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Will the 401(k) contribution limits be raised in 2022?

Contributions to 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan are now limited to $20,500 in 2022, up from $19,500 in 2021.

What are the 2021 401k contribution limits?

WASHINGTON (AP) Individuals can now contribute $20,500 to their 401(k) plans in 2022, up from $19,500 in 2021 and 2020, according to the Internal Revenue Service.

Can I put 100% of my salary into my 401k?

The maximum salary deferral amount you can contribute to a 401(k) in 2019 is the lesser of 100% of your pay or $19,000. Some 401(k) plans, however, may limit your contributions to a lower amount, and in such cases, IRS rules may limit the contribution for highly compensated employees.

Will the 401(k) contribution limits be raised in 2023?

Mercer LLC, an asset management firm, forecasts a nearly 10% increase in the maximum yearly limit that employees enrolled in 401(k), 403(b), and many 457 plans can make in 2023. The IRS currently caps annual employee deferral limits at $20,500, but Mercer Law and Policy analysts believe that figure could rise to $22,500.

What happens if I contribute more than $19,500 to your 401(k)?

What Happens If You Go Over the 401k Contribution Limit? If you exceed your 401k contribution limit, you must pay a 10% penalty for early withdrawal because the funds must be removed. The funds will take into account income, and any additional contributions will be taxed.

What is the 401k limit for 2023 over 50?

The contribution limit for SIMPLE 401k and SIMPLE IRA plans will go up by $1,500 from $14,000 in 2022 to $15,500 in 2023. If you are age 50 or over by December 31, the catch-up contribution limit in a SIMPLE 401k or SIMPLE IRA plan will increase by $500 from $3,000 in 2022 to $3,500 in 2023.

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