Retirement Topics - Defined Contribution Plan Limits
The annual limits that apply
to your Plan contributions:
Employee Elective Deferral Limit for 401(k), 403(b), 457(b)
Plan Types
The Limit on employee
elective deferrals is the lesser of:
The Annual Deferral Limit applies
to each Participant within a given Plan, and the Employer is responsible for
stopping the Participant's elective deferrals when they reach the Limit.
However, it is important to note that the Annual Deferral Limit also applies to
the Participant's net deferrals to all Qualified Plan Types, which means a Participant
who contributes elective deferrals to more than one employer Plan in a given
calendar year is responsible for monitoring and limiting their NET elective
deferrals to the Annual Deferral Limit.
The Plan terms may further
reduce the Annual Deferral Limit. The Employer may elect (in the Plan Document)
to reduce the government-imposed Annual Deferral Limit (402(g) Limit). That Plan-imposed
Limit may apply to all Participants or only apply to the Highly Compensated
Employees (HCE). Refer to your Summary Plan Description to determine whether
your Plan has a Plan imposed reduction to the Annual Deferral Limit.
Catch-Up Limit on Employee Elective Deferral for 401(a),
401(k), and 403(b) Plan Types
If permitted by your Plan,
certain participants may defer an additional elective deferral contribution,
referred to as the" Catch-Up" contribution. Refer to your Summary
Plan Description to determine if your Plan permits Catch-Up contribution.
*Indexed Limit and subject to change based on
cost-of-living adjustments.
The Annual Catch-Up Limit (like
the Annual Deferral Limit) applies to each Participant within a given Plan, and
the Employer is responsible for stopping the Participant's elective deferrals
when they reach the Limit. Again, same as with the Annual Deferral Limit, the Annual
Catch-Up Limit applies to the Participant's net deferrals to all Qualified Plan
Types, which means a Participant who contributes elective deferrals to more
than one employer Plan in a given calendar year is responsible for monitoring
and limiting their NET elective deferrals to the Annual Deferral Limit
including Catch-Up.
Annual Additions Limit for 401(a), 401(k), and 403(b) Plan
Types
The Annual Additions Limit
on Contributions caps the net contribution a Participant can receive in a given
Plan Year.
*Indexed Limit and subject to change based on
cost-of-living adjustments.
Example 1: Greg, 46, is employed by an
employer with a 401(k) plan, and he also works as an independent contractor for
an unrelated business. Greg sets up a solo 401(k) plan for his independent
contracting business. Greg contributes the maximum amount to his Employer's
401(k) plan for 2024, $23,000. Greg would also like to contribute the maximum
amount to his solo 401(k) plan. He cannot make further elective deferrals to
his solo 401(k) plan because he has already contributed his personal maximum,
$23,000. He has enough earned income from his business to contribute the
overall maximum for the year, $69,000 (for 2024). Greg can make a nonelective
contribution of $69,000 (for 2024) to his solo 401(k) plan. This Limit is not reduced by the elective deferrals under his Employer's
Plan because the Limit on annual additions applies to each Plan separately.
Example 2: In Example 1, if
Greg were 52 years old and the Plan permitted catch-up contributions, he could
contribute an additional $7,500 in elective deferrals for 2024. His catch-up
contribution could be split between the plans in any
proportion he chooses. His maximum nonelective contribution to his solo 401K)
plan would remain $69,000 for 2024 even if he contributed the full $7,500
catch-up contribution to this Plan.
Annual Additions Limit for SIMPLE 401(k) Plan Types
The Annual Additions Limit
on Contributions caps the net contribution a Participant can receive in a given
Plan Year. However, in a SIMPLE 401(k) Plan, the annual additions limit is set
by contribution type.
*Indexed Limit and subject
to change based on cost-of-living adjustments.
Compensation Limit
Eligible Compensation for
Plan purposes are the wages used when determining if a Participant has met or exceeded
an Annual Limit. Eligible Compensation (or Plan Compensation) is determined
based on two important factors:
Additional resources:
Page Last Reviewed or Updated: May
2024