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401(k) Contribution Limits

Key facts

  • Contributions to a 401(k) are made with pre-tax funds.
  • Annual 401(k) contribution limits are currently $18,000, but employees 50 and older are eligible to make an additional $6,000 in catch-up contributions.
  • The maximum combined contribution for employees and employers is currently $53,000, 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 2016, 401(k) limits are $18,000 for individuals under the age of 50. If you are age 50 or over, you can add an additional $6,000 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 $53,000, whichever is less. The $53,000 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. In the past five years, employee contribution limits have increased by a total of $1,000.

2017 2016 2015 2014
Maximum Employee Contribution $18,000 $18,000 $18,000 $17,500
Catch-Up Contribution $6,000 $6,000 $6,000 $5,500
Maximum Employee + Employer Contribution $54,000 $53,000 $53,000 $52,000
Maximum Employee + Employer Contribution with Catch-Up $60,000 $59,000 $59,000 $57,500
* Source: Announcements from IRS for 2014, 2015, 2016, 2017

Disclosure

Nothing in this article should be construed as tax advice, a solicitation or offer, or recommendation, to buy or sell any security. This article is not intended as investment advice, and Wealthfront does not represent in any manner that the circumstances described herein will result in any particular outcome. Financial advisory services are only provided to investors who become Wealthfront clients.

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.

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