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Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next. Bankrate follows a strict , so you can trust that we’re putting your interests first. All of our content is authored by and edited by , who ensure everything we publish is objective, accurate and trustworthy. Our reporters and editors focus on the points consumers care about most — how to save for retirement, understanding the types of accounts, how to choose investments and more — so you can feel confident when planning for your future. Bankrate logo Editorial integrity
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You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. If your long-term goal is to enjoy a comfortable retirement, is a great way to get there. Whether you choose a traditional or a Roth 401(k), however, the contribution limits are the same. “It’s much easier to start saving for retirement now so that the retirement accounts have time to grow versus waiting to save for retirement, where you would need to save much more than if you had started a decade before,” says Katie Brewer, CFP, the founder of Your Richest Life, a financial planning firm focusing on Gen X and Gen Y. With a 401(k) plan, employees have the opportunity to pay themselves first by making substantial annual contributions toward retirement. It’s just a matter of initially setting up a payroll deduction to contribute to your 401(k) and choosing investments, and then updating your preferences maybe once a year. 401 k contribution limits in 2022 and 2023
For 2023, the for employee salary deferrals is $22,500, which is above the 401(k) 2022 limit of $20,500. Employer matches don’t count toward this limit and can be quite generous. However, the total contribution limit, which includes employer contributions (and after-tax contributions, if your employer offers that feature), has increased to $66,000 in 2023, up from $61,000 in 2022. On top of these amounts, workers aged 50 and older can add up to $7,500 more annually as a catch-up contribution in 2023, up from $6,500 in 2022. The 401(k) contribution limits also apply to other so-called “defined contribution plans,” including: , available to education and non-profit workers. Most used by state and local government employees. The federal government’s Thrift Savings Plan. 401(k) plan limits 2022 2023 Change Maximum salary deferral for workers $20,500 $22,500 +$2,000 Catch-up contributions for workers 50 and older $6,500 $7,500 +$1,000 Total contribution limit $61,000 $66,000 +$5,000 Total contribution limit, plus catch-up contribution $67,500 $73,500 +$6,000 Compensation limit for figuring contributions $305,000 $330,000 +$25,000 Compensation threshold for key employee nondiscrimination testing $200,000 $215,000 +$15,000 Threshold for highly compensated employee nondiscrimination testing $135,000 $150,000 +$15,000 Employer match
Employers often provide a matching contribution, so if you don’t take advantage of this, you’re rejecting free money. But you may not be immediately entitled to that money. While your contributions are always in the plan, meaning they are immediately credited to your account, employers sometimes impose time restrictions on their contributions to provide an incentive for workers to stick around. “A company match is a way that your company will save for retirement on your behalf, but only if you save the minimum amount to get the match,” Brewer says. “It’s free money that requires that you put a certain amount into retirement to get the free money.” Typically, a 401(k) plan may offer an employer match of 50 cents on the dollar, up to 6 percent of a worker’s salary, which would be the equivalent of 3 percent of compensation. To take advantage of the full match, employees would have to defer 6 percent of their salary toward the 401(k) plan. Some plans are more generous, offering a 6 percent total match or more. Be sure to take advantage of the employer’s match because that’s free money to you — and a guaranteed return on your investment. Employers have a higher contribution ceiling
The employer’s 401(k) maximum contribution limit is much more liberal. Altogether, the most that can be contributed to your between both you and your employer is $66,000 in 2023, up from $61,000 in 2022. (Again, those aged 50 and older can also make an additional catch-up contribution of $7,500 in 2023.) That means an employer can potentially contribute much more than you do to your plan, though this is not the norm. The salary cap for determining employer and employee contributions for all tax-qualified plans is $330,000. Even at that level, the employer would have to contribute a hefty amount to reach the $66,000 limit. Traditional vs Roth 401 k
Some employers offer both a traditional 401(k) and a Roth 401(k). With a, you can defer paying income tax on the amount you contribute. In other words, if you earn $80,000 a year and contribute the maximum $22,500, your taxable earnings (assuming no other deductions) for the 2022 tax year would be $57,500. With a , you don’t get an upfront tax break, but when it’s time to withdraw that money in retirement, you won’t owe any tax on it. All your accumulated contributions and earnings come out tax free. Investing in both types of plans provides you with tax diversification, which can come in handy during retirement. If you have access to both a Roth and a traditional 401(k) plan, you can contribute to both, as long as your total contribution to both as an employee doesn’t exceed $22,500. In addition to the Roth and traditional 401(k), some employers also offer an “after-tax plan,” allowing you to save up to the total annual limit of $66,000. With this account you can put away money after-tax and it can grow tax-deferred in your 401(k) account until withdrawal, at which point any withdrawn earnings become taxable. Can I contribute 100 percent of my salary to a 401 k
If your earnings are below $22,500, then the most you can contribute is the amount you earn. It should also be noted that a document governs each particular plan and may limit the amount that you can contribute. This applies especially to highly compensated employees, which in 2023 is defined as those earning $150,000 or more or who own more than 5 percent of the business. Sponsors of large company plans must abide by certain discrimination testing rules to make sure highly compensated employees don’t get a lopsided benefit compared to the rank and file. Generally, highly compensated employees cannot contribute higher than 2 percentage points of their pay more than employees who earn less, on average, even though they likely can afford to stash away more. The goal is to encourage everyone to participate in the plan rather than favor one group over another. There is a way around this for companies that want to avoid discrimination testing rules. They can give everyone 3 percent of pay regardless of how much their employees contribute, or they can give everyone a 4 percent matching contribution. What percent should I contribute to a 401 k
Brewer suggests that your contributions should be based on a percentage of your income, depending on your . She recommends that you stash away between 10 percent and 15 percent of your gross income if you’re in your 20s and 30s, or if you started saving during those years. If you’re behind in retirement savings in your 40s and 50s, Brewer encourages you to set aside between 15 percent and 25 percent of your income. “If you’re not saving anything for retirement right now and want to get started, start with at least 3 percent to get going,” Brewer says. “Increase your contribution by at least 2 percent each year — and do a larger increase in years where you get a big raise — until you hit your target savings percentage.” Perks for older investors
If you happen to be at least 50 years old, you’re entitled to make “catch-up” contributions by adding an additional $7,500 for a total contribution of $30,000 in 2023. The total maximum that can be tucked away in your 401(k) plan, including employer contributions and allocations of forfeiture, is $73,500 in 2023, or $7,500 more than the $66,000 maximum for everyone else. Forfeitures come from an account in which company contributions accumulate from departing employees who weren’t vested in the plan. How to claim your retirement savings
Leaving your employer in the year you turn age 55 or after. , the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, made it easier to get at your money – up to $100,000 in loans or distributions, if the plan allowed it. These withdrawals had to be taken before the end of 2020. If you took a hardship loan in 2020, you could avoid paying the 10 percent penalty on the money, as well as take the option to repay the loan tax-free over a three-year period. There’s no replacing time in the market, she points out, and consistent saving over time is one of the best ways to build wealth for the future. SHARE: Bankrate reporter Brian Baker covers investing and retirement. He has previous experience as an industry analyst at an investment firm. Baker is passionate about helping people make sense of complicated financial topics so that they can plan for their financial futures. Brian Beers is the managing editor for the Wealth team at Bankrate. He oversees editorial coverage of banking, investing, the economy and all things money. Kenneth Chavis IV is a senior wealth manager who provides comprehensive financial planning, investment management and tax planning services to business owners, equity compensated executives, engineers, medical doctors and entertainers. Related Articles