401(k) Contribution Limits: Everything You Need to Know

With the demise of pension plans, 401(k) plans have become the most popular employer-sponsored retirement plan in the United States. Employees in the United States have trillions of dollars saved up in 401(k) plans, helping them to get financially prepared for retirement.

The major benefit of 401(k) retirement plans is their tax-advantaged status. Employees can contribute to their 401(k) plan before taxes, allowing them to contribute more money than if they waited to invest after-tax dollars. Those contributions also deduct from annual income, meaning that employees also pay less income tax in the present.

Gains within a 401(k) plan accrue tax-free, with taxes only being assessed when employees decide to or are required to take a distribution. But as with anything that saves you tax payments, the government won’t let you have too much of a good thing.

Governments depend on tax revenue, so the federal government has placed limits on how much individuals can contribute to a 401(k) plan each year. Otherwise, there would be an incredible incentive to invest huge amounts of money into 401(k) plans to shelter more and more money from taxation.

The limits on contributions are normally indexed to inflation and can change each year. Before the beginning of each tax year, the Internal Revenue Service (IRS) will announce changes to that 401(k) contribution limit, so it can help to watch the IRS website for any announcements.

Solo 401(k) Contribution Limits for 2024

For 2024, individuals are able to contribute up to $23,000 to a 401(k) plan, an increase from the $22,500 401(k) contribution limit in 2023. IRS also allows employees older than 50 to make “catch-up” contributions to 401(k) accounts to help boost their savings before retirement. The limit for catch-up 401(k) contributions was $7,500 for 2023 and remained $7,500 in 2024.

It’s common for many companies to make contributions to employees’ 401(k) plans too. The average employer contribution is about 4.8% of salary. But there are limits to how much employers can contribute. For 2024 the maximum combined employer and employee 401(k) contribution is $69,000, or $76,500 with catch-up contributions.

These limits will most likely increase again in 2025, as they are indexed to inflation. The official IRS figures are normally published in late October or early November, so if you really want to stay on top of things, you can browse the IRS website in the fall to find updated numbers.

Highly-Paid Employee 401(k) Contribution Limits

Because well-paid employees can contribute more money to 401(k) plans than those who make less money, IRS wanted to make sure that 401(k) plans weren’t disproportionately benefiting high rollers. Thus, there are limits as to how much highly-compensated employees (HCE) can contribute to a 401(k) plan.

The threshold for being a highly-compensated employee for 2024 is $155,000. Once your compensation exceeds that threshold, your ability to max out a contribution to a 401(k) plan can be significantly reduced.

If you find out after the fact that you are a highly-compensated employee, any excess money you contributed will be refunded to you, and you’ll then owe taxes on that additional compensation.

If you’re at or near that highly-compensated employee threshold, you’ll want to contact your company’s HR, benefits, or payroll department to see whether you’re considered highly-compensated. It also can’t hurt to contact a financial adviser to see how you can plan for retirement if your ability to max out contributions to a 401(k) plan is hampered.

Understanding Solo 401(k) Rules

Contribution limits to 401(k) plans exist because the IRS didn’t want just highly-paid employees to benefit from the tax advantages of a solo 401(k). The IRS wanted all employees at every level to be able to save and invest for retirement.

If you find yourself maxing out your 401(k) contributions, or if you find that you’ve hit a lower 401(k) contribution limit because of your income level, there are other ways to save for retirement that are similarly tax-advantaged.

You can start an individual retirement account (IRA), which also offers the same tax advantages as a solo 401(k) plan. Annual IRA contribution limits for 2024 are $7,000, or $8,000 for those over age 50.

You can even start a gold IRA, which can place your assets into physical gold. Funding a gold IRA can be done either through annual contributions ($7,000 limit) or through a gold 401(k) rollover. That’s an especially popular option for those whose 401(k) investment options are limited, or who want to protect their 401(k) assets from losing value during a stock market crash.

Maximize Your 401(k) Investments

If you’ve maxed out your 401(k) contribution limit, don’t let that dissuade you from continuing to save money if you have additional money to invest. The more money you invest, the more gains you can make, and the better off you could be in retirement. No one ever got to retirement wishing they had saved less money.

If you’ve reached the 401(k) limit or maxed out your IRA contributions, give some thought to mixing up your holdings and diversifying your investment portfolio. Rolling over existing retirement assets from a 401(k) to a gold IRA can be done easily and tax-free, allowing you to protect your assets from losing value to a weakening economy.

Don’t let your hard-earned retirement savings languish in an underperforming 401(k) plan or lose value just because you don’t know what else to do with it. Learn more about how you can maximize the earning power of your 401(k) investments.

This article was originally published in October 2019 and was updated in March 2024.