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Everything you need to know

by Ana Lopez
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Contributing to a 401(k) is perhaps one of the smartest things you can do to prepare yourself for a comfortable retirement in your golden years.

However, unlike simply putting money into a savings account, you can only put so much into your 401(k) retirement plan each year because of the 401(k) contribution limits.

Unfortunately, things get a little more complicated as the government changes contribution limits for 401(k)s annually. Here you will get all the necessary information about 401(k) contribution limits for 2023.

What are 401(k) contribution limits?

Simply put, 401(k) contribution limits are federally capped maximum contribution amounts you can use for a 401(k) retirement plan. In other words, you can’t funnel every extra dollar you have in your paycheck into your 401(k) plan above your annual contribution limit.

There are tax breaks for retirement plans, and higher-paid employees can afford to allocate more money to 401(k) and other plans. Limits are put in place to prevent these high net worth individuals from disproportionately benefiting from these plans, which provide tax benefits at the expense of the U.S. Treasury.

When you invest in a 401(k), you are putting money into your future by:

  • Giving your money to the managers of a 401(k) retirement plan.
  • Those managers then use that money to invest in various stock market assets, such as mutual funds.
  • 401(k) managers traditionally invest in relatively safe, slow-growing assets that are not ideal for making a lot of money quickly. But they are useful for you to make sure you have enough money to enjoy your golden years.

Plan limits prevent individuals from playing the system, especially by taking advantage of employer-related contributions.

The IRS also does this to prevent highly compensated employees (HCEs) from taking advantage of employee contributions to inflate their after-tax savings or regulate the income tax system.

Many 401(k) plans allow your employer to match your contribution to a set limit (usually a certain percentage or dollar amount).

Related: 401(k) – Small Business Encyclopedia for Entrepreneurs

For example, if an employer volunteers to match your 401(k) contribution up to 3%, and you earn $2,000 each month for your paycheck, you can put 6% of the value of that paycheck into your 401(k), or about $120.

If there were no compensation limits, people could try to get more money from their employers by depositing more and more money into their retirement accounts.

To summarize, 401(k) contribution limits prevent people from taking advantage of 401(k) plans and their financial benefits. However, contribution limits for 401(k)s usually don’t stay the same. Instead, they are constantly changing to keep up with inflation and other economic conditions.

Do these limits apply to other pension plans?

Yes. In general, 401(k) contribution limits apply to all other “defined contribution” plans.

These are plans that have been defined contribution limits or policies, and these include:

  • 403(b) plansthese are retirement plans typically used by non-profit organizations and educational staff.
  • 457 plans, used by local and state government employees.
  • Thrift savings plans, which the federal government offers.

401(k) contribution limits for 2023

That said, it’s essential to check the 401(k) contribution limits for 2023 so you can plan how much you will invest or how much you will deduct from your paychecks.

Here’s a rundown of the 2023 401(k) income limits:

  • $22,500 – maximum salary deferral or automatic contribution limit for employees.
  • $7,500 – maximum catch-up contributions for all employees age 50 and older.
  • $66,000 – total contribution limit for the entire year.
  • $73,500 – total contribution limit, including the above catch-up contribution.

In other words, with each paycheck you can divert a certain percentage of your paycheck up to $22,500 plus $7,500 if you’re 50 or older. However, your employer can contribute additional money to your 401(k) up to a maximum of $66,000.

How does 401(k) contribution limits change from 2022?

Because inflation has affected the US economy, so have the above 401(k) contribution limits changed from 2022.

For example, the 2022 pay deferral limit for employees was $20,500, which equates to a $2,000 increase in 2023. Similarly, the catch-up contribution limit for all employees age 50 and older was previously $6,500, but is now $7,500.

The total contribution limit was $61,000 and $67,500 for total contribution limits and total contribution limits plus catch-up contributions, respectively. As you can see, the 401(k) contribution limits have been changed for 2023 by adding a few thousand dollars here and there.

It’s not a huge change, but if you invest early and wisely, that money could be worth hundreds of thousands or millions of dollars by the time you withdraw it in retirement.

Limits of employer contributions for 2023

In most 401(k) plans, employers contribute up to a certain amount to their employees’ retirement plans. Employers have much higher maximum contribution limits.

The maximum amount you can contribute to a 401(k) plan (between you and your employer) is $66,000 in 2023. This limit was $61,000 in 2022.

This allows employers to contribute much more money to your 401(k) plan than you can, but this is not usually what happens. Instead, most employers offer relatively meager or moderate 401(k) matching contributions.

Related: 4 questions entrepreneurs should ask their 401(K) providers

Don’t expect to add $66,000 to your 401(k) plan annually. However, if an employer offers a retirement benefit for this, consider taking up a job offer to maximize your retirement savings.

Are there differences between traditional and Roth 401(k) contribution limits?

No. Whether you have a traditional 401(k) or a Roth 401(k), your contribution limits are the same. The only difference between these two types of 401(k) retirement plans is whether you are taxed on your contributions or taxed on your withdrawals.

Related: Pros and Cons of Choosing a Roth 401(k) Over Traditional 401(k) — and Vice Versa

Your contributions are tax-deferred with a traditional employer-sponsored 401(k) plan, and you can deduct those contributions from your gross income each tax year. This optional deferral allows you to maximize your contributions each year.

However, when you withdraw money from your traditional 401(k), you must pay taxes on those contributions.

If you move into a higher tax bracket in retirement because of the amount you’ve saved, you may have to pay much more tax than if you had initially paid taxes on your deductions.

Roth 401(k) plans are the opposite. With a Roth 401(k), you pay taxes on all of your retirement contributions in the tax years in which you earn them. In return, you won’t have to pay taxes on your Roth 401(k) withdrawals later.

Therefore, Roth 401(k) plans tend to be more profitable and affordable in the long run, but place a greater financial burden on you in the short run. But remember, there are no changes or differences in the contribution limits between both plan types.

What is the ideal amount to contribute to your 401(k) plan?

In general, you should contribute as much as you can to your 401(k) plan up to the contribution limit. But the ideal retirement contribution rate can vary depending on your age, cost of living and your personal finances.

For example, it might be a good idea to contribute between 10% and 15% of all your gross income to your retirement. You can contribute this amount to a 401(k) or a 401(k) in combination with an IRA (individual retirement account) in your 20s and 30s.

If you fall behind on retirement savings in your 40s or 50s, consider contributing more to your 401(k) account. If you’ve already reached your 401(k) plan limit, look into alternatives like IRAs or Roth IRAs.

Related: 4 reasons to look beyond a 401(k)

Both IRAs and Roth IRAs also have contribution limits. But IRA contribution limits are separate from your 401(k) contribution limits. For example, if you can only contribute $22,600 to your 401(k), you can still contribute $6,500 to your IRA (the contribution limit for traditional IRA and Roth IRA accounts in 2023).

Don’t forget about social security either. Depending on the number of calendar years you have worked and your taxable income, you may receive extra money after you retire.


Contribution limits for 401(k) plans have been increased since 2022. Since these limit changes are designed to keep up with inflation, that’s a good thing for millions of Americans who rely on 401(k)s to save money for retirement .

Still, there’s much more to successfully saving for retirement than simply putting money into your 401(k).

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