If you are saving for your 401(k) retirement plan, knowing how much you can contribute to your plan each year is essential. The maximum amount you can contribute to your 401(k) plan account may be adjusted yearly.
Contribution Limits for 2024
In 2024, for traditional (pre-tax) and Roth contributions, the annual limit is $23,000 per participant.
Plus, a catch-up contribution of $7,500 is allowed for participants 50 and over, bringing their total annual contribution limit to $30,500.
Combined contributions made by employers and employees have an annual limit of $69,000.
Any saver aged 50 and over is allowed a catch-up contribution of $7,500, bringing their total combined limit to $76,500.
Note: Starter 401(k)s are a specific type of 401(k) that Congress introduced in the SECURE Act 2.0 of 2022. Though similar to traditional 401(k)s, some key differences include lower employee contribution limits. For 2024, employees can contribute up to $6,000, with an additional $1,000 catch-up contribution allowed for those aged 50 and older.
What Is a Catch-Up Contribution?
A catch-up contribution is a type of retirement savings contribution that allows participants aged 50 and over to make additional contributions to their 401(k) plan accounts, allowing these participants to set aside more for their retirement.
Usually, participants with a late start in contributing to their retirement will take advantage of the catch-up contribution option.
How Are Catch-Up Contributions Made?
Catch-up contributions can be made beyond the current limits. A saver who is age 50 or older can then make a catch-up contribution after the maximum regular contribution allowed for the year has been reached, which in 2024 is $23,000.
If you have decided to make catch-up contributions, contact your plan administrator for further details.
What Are Employer Contributions?
Some employers offer the benefit of contributing to an employee's 401(k) account. Depending on your plan’s features, these contributions can be made through:
Employer Matching Contributions: When an employer matches your contributions, a given amount is deposited to your 401(k) plan account based on how much you contribute annually. There are two common types of matches:
- Partial Matching: Your employer may match a certain percentage of whatever you contribute but no more than a total percentage of your salary total. For example, your employer might match half of whatever you contribute but no more than 3% of your salary total. To get to the maximum amount of this match, you would need to contribute 6% of your salary.
- Dollar-For-Dollar Matching: This is referred to as a full match, your employer contributes the same amount you do up to a certain amount determined by your employer.
Profit Sharing: This contribution type is a pre-tax contribution that employers make to their employees' 401(k) plan accounts after the end of the year. As an example, employers can use profit sharing as a year-end bonus for employees. There are two common options:
- Same Dollar Amount Method: Every employee receives the same contribution amount.
- Comp-to-Comp Method: Profit sharing is based on employees' relative salaries. For example, employees are set to receive contributions equal to 5% of their respective salary.
Safe Harbor: This is a special type of 401(k) plan that requires employers to make contributions to the plan for their employees’ benefit. There are a few available contribution options:
- Basic Safe Harbor: Also known as an elective safe harbor, this type of plan requires employers to match 100% of employees’ contributions up to 3% of an employee's compensation.
- Nonelective Safe Harbor: Employers make a retirement contribution of 3% of compensation for all workers, regardless of whether they choose to participate in the plan.
- Enhanced Safe Harbor: This type of plan typically provides a 100% match of up to 4% of an employee's compensation.
- Qualified Automatic Contribution Arrangement Safe Harbor: This type of plan automatically enrolls employees after they satisfy the plan’s eligibility rules. The plan contributes 3% of an employee's compensation to the plan unless the employee opts out. The contribution rate increases each year by 1% until the employee’s deferral rate reaches 6% of compensation.
To confirm whether your plan offers any employer match features, please review your plan's Summary Plan Description located in the "Documents" tab of your Vestwell portal.
Note: Starter 401(k)s are a specific type of 401(k) that Congress introduced in the SECURE Act 2.0 of 2022. Though similar to traditional 401(k)s, Starter 401(k)s do not permit employer contributions.