401(k) Contribution Limits
Key facts
- Contributions to a 401(k) are made with pre-tax funds.
- Annual 401(k) contribution limits are currently $19,500, but employees 50 and older are eligible to make an additional $6,500 in catch-up contributions.
- The maximum combined contribution for employees and employers is currently $57,000, not including catch-up contributions.
Participating in your employer’s 401(k) plan is often considered an effective way to save for retirement. After all, contributions are tax-deferred, so funds are automatically deducted from your pre-tax paycheck and earnings grow tax free. Your employer takes care of all plan logistics, and all you have to do is decide how much to contribute. In many cases, employers will match a portion of the contributions you make, making it a great way to grow your retirement savings quickly. Understanding the rules around contribution limits is an important first step in planning for your 401(k).
401(k) Contribution Limits
IRS regulations determine 401(k) contribution limits, both for employees and for employers. In 2020, 401(k) limits are $19,500 for individuals under the age of 50. If you are age 50 or over, you can add an additional $6,500 to your account if your employer’s plan permits catch-up contributions. Note: your company plan may specify a lower maximum employee contribution than the IRS’s amount, but not a higher one.
Employers that offer matching contributions are held to a limit as well. The combined amount of employee and employer contributions cannot be more than 100% of the employee’s annual salary or $57,000, whichever is less. The $57,000 figure does not include catch-up contributions made by the employee.
Contribution Limits Over Time
Contribution limits are reviewed each year, and adjustments are made when necessary to keep up with the cost of living.
| 2020 | 2019 | 2018 | 2017 | 2016 | |
| Maximum Employee Contribution | $19,500 | $19,000 | $18,500 | $18,000 | $18,000 |
| Catch-Up Contribution | $6,500 | $6,000 | $6,000 | $6,000 | $6,000 |
| Maximum Employee + Employer Contribution | $57,000 | $56,000 | $55,000 | $54,000 | $53,000 |
| Maximum Employee + Employer Contribution with Catch-Up | $63,500 | $62,000 | $61,000 | $60,000 | $59,000 |
* Source: Announcements from IRS for 2016, 2017, 2018, 2019
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This article is not intended as tax advice, and Wealthfront does not represent in any manner that the outcomes described herein will result in any particular tax consequence. Prospective investors should confer with their personal tax advisors regarding the tax consequences based on their particular circumstances. Wealthfront assumes no responsibility for the tax consequences to any investor of any transaction. Investors and their personal tax advisors are responsible for how the transactions in an account are reported to the IRS or any other taxing authority.