401(k) Contribution Limits for 2024: All You Need to Know

Those interested in saving for retirement have plenty of options to choose from. One of the most popular and convenient ways to secure the future is using a retirement savings account, such as 401(k).

What you should know about this account is that you cannot just contribute any sum you like. There are specific 401(k) contribution limits you need to be aware of, and new ones are established every year by the IRS.

In this article, you will learn about employee and employer contribution limits, maximum catch-up contributions, and more. Let’s take a look at all the different limits in detail.

Employee Contribution Limits

Numerous experts agree that to have a secure retirement, a person should put 10-15% of their annual income towards savings. Depending on income, these sums can be very different, and each savings account allows you to add money only up to a certain limit. 401(k) is not an exception.

So, what is the max 401(k) contribution amount if you are an employee? Compared to the previous year, the maximum contribution sum for 2024 has increased by $500. Now, as an employee, you can contribute a maximum of $23,000 a year to your 401(k) savings account.

According to the IRS, the cost of living adjustments and inflation have a direct impact on the maximum deferral limit, which is why it becomes higher each year.

You need to keep in mind that the mentioned 401(k) limit doesn’t apply to just a single account. The sum of your contributions (regardless of how many accounts you currently have) cannot be higher than $23,000.

The situation is slightly different for people over 50, as they additionally have access to catch-up contributions. Those over the age limit can contribute $7,500 on top of the standard $23,000, which has not changed since 2023.  That is, an individual aged 50 and above can make a 401(k) max contribution of $30,500 to their chosen account, which is a particularly important opportunity for those who haven’t been saving up enough prior to turning 50.

Employer Contributions

Another essential question to answer is what is the maximum 401(k) contribution for an employer? If you are lucky to have an employer who offers to match your 401(k) contribution, you should know what that entails.

The first thing to know about employer contributions is that they are not included in your personal limit of $23,000. This is undoubtedly great news, as you will benefit from a significantly higher sum set aside for your retirement. Thus, your employer can either match your contributions or pay less. But that’s not all.

If the employer offers after-tax contributions, they are also additionally increasing the limit for your 401(k) savings account. In such a way, both an employee under 50 and an employer can contribute $69,000 together to an employee’s 401(k) account. Respectively, if you are an employee over 50 who can contribute an additional $7,500, your maximum joint deferrals with your employer will be $76,500.

The peculiarities of employer contribution don’t end here, as there are also restrictions in place for highly compensated employees (HCE). According to the IRS, an individual falls into the highly compensated category in the following cases:

• In 2024, they earned more than $155,000, or they were in the top 20% of all employees based on their compensation amount.
• Regardless of the compensation, if they owned over 5% of the interest in the employer’s business. This factor takes into account not only the current but also the preceding year.

The limit for HCEs is established to prevent unfair contribution levels. To determine this, the IRS created the actual deferral percentage (ADP) test, which should be used by companies. The test is used to see whether HCEs in the company benefit more from their 401(k) plans compared to non-highly compensated employees (NHCE).

The test requires that the ADP of the NCHEs be at least two percentage points higher than that of the HCEs. If the situation is different, the limits are imposed on the contributions of HCEs.

Roth 401(k) Contributions

Numerous people who are saving for retirement choose a Roth 401(k) instead of a traditional one. Compared to the traditional 401(k), this is an after-tax plan, which means that once you retire, you will be able to withdraw money tax-free. This is a great option for people who expect to pay more in taxes when they retire than now.

But how much can you contribute to 401(k) if you go the Roth route? As it turns out, Roth has the same limits as traditional 401(k) — $23,000 for those under 50 and an additional $7,500 for people over 50. However, you should remember that if you have both Roth and traditional 401(k), it means that $23,000 is your maximum 401(k) contribution for both accounts.

IRA and 401(k) At the Same Time: Is It Possible?

If you want to make even higher contributions, you may be interested in combining both IRA and 401(k) plans. An IRA is an excellent addition to your retirement savings. Just like 401(k), there are two IRA types to choose from — Roth and traditional.

When you decide to use both IRA and 401(k), you can reach limits on both, as they are not combined. In 2024, the IRS established the IRA contribution limit of $7,000 for people under the age of 50, which is $500 more compared to the preceding year. Similar to 401(k), those who are over 50 can make catch-up contributions of $1,000, so their overall limit is currently $8,000.

By combining both IRA and 401(k), you can get closer to reaching your savings goals if you want to set more money aside for when you retire.

Final Thought

Now that you have the answer to what is the 401(k) limit in 2024, you can be sure that you will not contribute more than the allowed amount and won’t have to take measures to deal with excess elective deferrals. You should keep in mind that the limit will be different each year as the cost of living increases. You can always check relevant information regarding the 401(k) annual limit on the IRS official website.

If your employer offers matching of your contribution amount, you should definitely not miss out on this opportunity. Also, if you are over the age of 50 and can contribute an additional $7,500 to your account, this is undoubtedly a great strategy, which is particularly crucial for those who think they contributed less than desired over the years.