What Are the 401(K) Contribution Limits for 2023?

A 401(k) account enables you to invest money for retirement and realize tax benefits, but you must understand some limits. The 401(k) contribution limits control how much you can contribute so employees don’t defer 100% of their income and not pay taxes.

While the 401(k) contribution limits may seem like a nuisance, they are there to protect taxpayers and the government. There are other ways to increase your retirement savings in addition to a 401(k).

401(k) Contribution Limits for 2023

Understanding the 401(k) contribution limits for 2023 can help you plan your retirement savings accordingly. While it would be great if you could defer as much of your income as you wanted for retirement, there are limits on the tax-deferred benefits you can claim.

There are employee annual contribution limits plus maximum contribution limits, which are a combination of employee and employer contributions.

Employee Annual 401(k) Contribution Limits

The employee contribution limit is the amount you can contribute from your pay, deferring taxes on the amount.

  • Employees under age 50 can contribute up to $22,500.
  • Employees over 50 may contribute an additional $7,500 in catch-up contributions.

Maximum 401(k) Contribution Limits for 2023

The total 401(k) contribution limits for 2023 are $66,000 for employee and employer contributions. This means employers can contribute up to $43,500 to your 401(k) account.

Not all employers match contributions, but some match dollar-for-dollar or 50% for every dollar up to a certain dollar limit.

It's like free money, and you should always take advantage of it.

Combined Employer and Employee Annual 401(k) Contribution Limits

The combined employer and employee annual 401(k) contribution limits are $66,000 for employees under 50 and $73,500 for employees over 50 to account for the $7,500 allowed in catch-up contributions.

Traditional vs Roth 401(k) Contribution Limits

Traditional and Roth 401(k) accounts have the same contribution limits. So if your employer has a Roth 401(k) offering (not all do), you can decide if you want to invest your funds pre-tax now or post-tax and enjoy tax-free growth on your earnings.

Also, unlike Roth IRAs, Roth 401(k) accounts don’t have an income limit, so no one is excluded from this investment option if their employer offers it.

401(k) Contribution Limits for Highly Compensated Employees

Highly compensated employees (HCE) are at a disadvantage when it comes to retirement savings because they make so much. Some employers limit highly compensated employees to contributions that are no more than 2% higher than what the average employee can contribute.

For example, if the average employee at a company contributes 4% of their salary, a HCE may only contribute up to 6% of their salary while still minding the federal limit.

Highly compensated employees are those who earn $150,000 or more or who had at least 5% ownership in a company last year.

The IRS uses last year’s information to qualify HCEs.

HCEs who want to contribute more than the limit should consider other retirement accounts outside of their employer-sponsored plan.

Catch-up Contributions

Anyone over 50 is eligible for catch-up contributions, which means you can contribute up to an additional $7,500 to your 401(k) in 2023. You aren’t obligated to do so, but you have the option.

401(k) Contribution Limits When You Have Multiple 401(k) Plans at Different Employers

The 401(k) limit is the limit across all 401(k) contributions, including if you change jobs.

So, for example, if you contribute $10,000 at your current job and then change jobs mid-year, you may only contribute up to $12,500 in 2023.

Your total employer contributions are also across all employers, even if you change jobs.

Income Restrictions

401(k) accounts are unlike IRAs and don’t have income restrictions. While anyone can open a traditional IRA if they have earned income (or wish to contribute to a spousal IRA), Roth IRAs have strict income limits. If you exceed them, it may make you ineligible for one. But Roth 401(k) accounts do not have this same restriction.

How Much Should I Contribute to My 401(k)?

Determining how much and where to contribute to your 401(k) is an important decision between retirement accounts and tax strategies, as it determines how much you’ll have in your golden years.

Here are some factors to consider.

Secure Your Employer’s Match

Always contribute at least as much as your employer will match.

For example, if you make $50,000 and your employer matches 2% of your salary, be sure you contribute at least $1,000 each year to get the free employer match.

It’s free money that you don’t have to contribute yourself.

Start Saving Early and Consistently

Contribute to your 401(k) as soon as you are able. Don’t wait.

The longer you delay investing for retirement, the more money you must save at a later time.

The earlier and more consistent you are about saving, the more you get to benefit from compound interest and market fluctuations.

Invest in Low-Cost Index Funds

Your employer may have a large selection of investments to choose from but stick to low-cost index funds. They mimic the index they follow and don’t have a lot of fees.

Some 401(k) investments are fee-heavy, which can really add up over time, so try to avoid them.

Increase Your 401(k) Percentage Annually

As inflation increases, so should your 401k contributions. Regularly increasing how much you contribute will make it easier to reach your goals and ensure you have the lifestyle you want in retirement.

Allocate Your Raises to Your 401(k)

If you get raises, be sure to increase your 401(k) contributions accordingly.

Take the percentage of your salary that you were investing and recalculate the amount you should defer to your 401(k) based on your new income.

Some people may choose to even allocate all of their raises to investing in their 401(k), as long as they are following IRS rules.

Understand Your Vesting Schedule

Know when you’ll be fully vested if you get an employer match. If you aren’t fully vested, any funds your employer contributed may not follow you if you quit or get fired.

Get to know the vesting schedule before making any career changes so you don’t leave any money behind.

Make a Plan if You Leave a Job

If you plan to leave your job, decide what you’ll do with your 401(k). Your new employer may have a 401(k) on day one, allowing you to roll over your existing 401(k).

If not, you must figure out where to roll it over so you don’t pay the 10% early withdrawal penalty plus any applicable fees.

If you don’t have a new 401(k) to roll it over to, consider opening an IRA (pending eligibility) and immediately depositing the funds in there, so you aren’t subject to any penalties.

When Should You Max Out Your 401(k)?

Believe it or not, it’s not always the best idea to max out your 401(k). The key is to look at the big picture. What other financial goals do you have? Have you saved for them?

Think of short- and long-term goals, such as buying a house, a car, or paying for college. Maybe you have high-interest debt you need to pay off, or you don’t have great health insurance and could be at risk for expensive medical bills.

Unless you are 100% certain that all other areas of your financial life are secure, it’s best to look at all areas to determine the best allocation to meet your obligations and goals.

Pros and Cons for Maximizing Your 401(k)

Deciding if you should or shouldn’t max your 401(k) should be based on the pros and cons of doing it.


  • Tax Advantages – You can defer taxes on new earnings or invest tax-free with a Roth 401(k). Either way, you get great tax benefits, decreasing how much you owe Uncle Sam and increasing the amount in your pocket during retirement.
  • Accelerated Retirement Savings – Maxing out your 401(k) may help you reach your retirement goal faster. The more you save, the faster your money will grow and the easier it is to live the life you want in retirement.
  • Employer Matching Contribution – You don’t have to worry about not meeting the employer matching contribution, making the most of your 401(k) contributions.
  • Compound Interest and Growth – The earlier and the higher the amount you invest, the more chances you have for compound interest and growth to take effect.
  • Financial Security and Retirement – Knowing you maxed out your 401(k) may provide you with a sense of financial peace, given that you’re planning for your retirement needs.
  • Early Retirement Possibility – Depending on your age, lifestyle, and overall financial picture, you may be able to retire a few years early by maxing out your 401(k).


  • It’s Not Realistic – Most people can’t max out their 401(k) because it won’t leave enough money for living expenses, discretionary spending, and other financial obligations.
  • You May Rob Yourself of Other Financial Goals – Putting all your money away for retirement may not leave enough money for short-term goals.
  • Tax Penalties – If you need to liquidate the funds you tied up for retirement, you’ll pay a hefty penalty of 10% plus the applicable taxes at your current tax rate.

What To Do After You Have Maxed Out Your 401(K) Plan?

If you’ve maxed out your 401(k) plan, you may still be able to contribute after-tax funds. This means you pay taxes on the earnings but still invest them in your 401(k).

The 401(k) total limit between employer and employee contributions still exists, but if your employer doesn’t contribute the maximum allowed, you can make up the difference with after-tax contributions.

Just keep in mind you might pay double taxes on these funds (taxes when you earn and then again when you withdraw) because they aren’t tax-advantaged contributions. So, you may want to explore other options, like an IRA.


What Happens if You Contribute Too Much to Your 401(k)?

If you contribute too much to your 401(k), you may face the same penalties you would if you withdraw funds before retirement. The IRS charges a 10% penalty on all funds in excess of the 401(k) limit plus taxes on the funds that exceed the limit when you withdraw them.

This is typically a risk only if you change jobs and don’t carefully keep track of your contributions and how close they are to the limit since most companies carefully monitor employees’ contributions.

If you run into this issue, contact your retirement plan holder and tax advisor as soon as possible. They may be able to help you remove the excess contribution and minimize any tax penalties.

How Do Contribution Limits Impact Retirement Savings?

Contribution limits can limit how much you save for retirement, inhibiting your savings if you start late. However, the catch-up contributions allow an extra $7,500 per year, allowing you to catch up without paying penalties or fees.

If the 401(k) contribution limits are too much for your retirement goals, you can find other ways to save for retirement outside of the 401(k) by talking to a financial advisor.

Will the Contribution Limits Change in the Future?

The IRS revisits the 401(k) contribution limits annually and adjusts for inflation as needed. For example, in 2022, the limit was $20,500 but increased to $22,500 in 2023.


The 401(k) contribution limits increase annually for employees and employers who wish to contribute to retirement accounts.

Employer matches are like free money, so always take advantage of that. But be careful of the fees charged by 401(k) accounts and ensure you’re putting your money to its most optimized use.

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