Retirement Topics - 401(k) and Profit-Sharing Plan Contribution Limits

Two annual limits apply to contributions:

Deferral limits for 401(k) plans 

The limit on employee elective deferrals (for traditional and safe harbor plans) is:

Generally you aggregate all elective deferrals you made to all plans in which you participate to determine if you have exceeded these limits. If a plan participant's elective deferrals are more than the annual limit, find out how you can correct this plan mistake.

Deferral limits for SIMPLE 401(k) plan

The limit on employee elective deferrals to a SIMPLE 401(k) plan is:

Plan-based restrictions on elective deferrals

These restrictions may further reduce the maximum allowable elective deferrals:

Catch-up contributions for those age 50 and over

If permitted by the 401(k) plan, participants who are age 50 or over at the end of the calendar year can also make catch-up contributions. The additional elective deferrals you may contribute is:

You don't need to be "behind" in your plan contributions in order to be eligible to make these additional elective deferrals.

Catch-ups for participants in plans of unrelated employers

If you participate in plans of different employers, you can treat amounts as catch-up contributons regardless of whether the individual plans permit those contributions. In this case it is up to you to monitor your deferrals to make sure they do not exceed the applicable limits.

Example: If Joe Saver, who's over 50, has only one employer and participates in that employer's 401(k) plan, the plan would have to permit catch-up contributions before he could defer the maximum of $30,000 (the $22,500 regular limit for 2023 plus the $7,500 catch-up limit for 2023). If the plan didn't permit catch-up contributions, the most Joe could defer would be $22,500. However, if Joe participates in two 401(k) plans, each maintained by an unrelated employer, he can defer a total of $30,000 even if neither plan has catch-up provisions. Of course, Joe couldn't defer more that $22,500 under either plan and he would be responsibile for monitoring his own contributions.

The rules relating to catch-up contributions are complex and your limits may differ according to provision in your specific plan. You should contact your plan administrator to find out whether your plan allows catch-up contribuitons and how the catch-up rules apply to you.

Treatment of excess deferrals

You have an excess deferral if the total of your elective deferrals to all plans is more than the elective deferral limit for the year. You may notify your plan administrator before April 15 of the following year that you would like the excess deferral amount, adjusted for any gains and losses, to be paid from the plan. The plan must then pay our the amount plus allocable earnings by April 15 of the year following the year in which the excess occurred.

Excess withdrawn by April 15. If you withdraw the excess deferral for 2023 by April 15, 2024, it is includable in your gross income for 2023, but not for 2024. The April 15 date is not tied to the due date for your return even if the due date of your tax return was extended to after April 15, 2024. However, any income earned on the excess deferral taken out is taxable in the tax year in which it is taken out. The distribution is not subject to the additional 10% tax on early distributions.

Excess not withdrawn by April 15. If you don't take out the excess deferral by April 15, 2024, the excess, though taxable in 2023, is not included in your cost basis in figuring the taxable amount of any eventual distributions from the plan. In effect, an excess deferral left in the plan is taxed twice, once when contributed and again when distributed. Also, if the entire deferral is allowed to stay in the plan, the plan may not be a qualified plan.

Reporting corrective distributions on Form 1099-R. Corrective distributions of excess deferrals (including any earnings) are reported to you by the plan on Form 1099-R. Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.

Overall limit on contributions

Total annual contributions (annual additions) to all of your accounts in plans maintained by one employer (and any related employer) are limited. The total annual contributions

The annual additions paid to a participant's account cannot exceed the lesser of:

  1. 100% of the participant's compensation or

  2. $66,000 ($73,500 including catch-up contributions) for 2023

There are separate, smaller limits for SIMPLE 401(k) plans.

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 2023, $22,500. Greg would also like to contribute the maximum amount to his solo 401(k) plan. He is not able to make further elective deferrals to his solo 401(k) plan because he has already contributed his personal maximum, $22,500. He has enough earned income from his business to contribute the overall maximum for the year, $66,000 (for 2023). Greg can make a nonelective contribution of $66,000 (for 2023) 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 eligible to make catch-up contributions, he could contribute an additional $7,500 of elective deferrals for 2023. 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 $66,000 for 2023 even if he contributed the full $7,500 catch-up contribution to this plan.

Compensation limit for contributions

Remember that annual contributions to all of you accounts - this includes elective deferrals, employee contributions, employer matching and discretionary contributions and allocations of forfeitures to your accounts - may not exceed the lesser of 100% of your compensation, or $66,000 for 2023. In addition, the amount of your compensation that can be taken into account when determining employer and employee contributions is limited. The compensation limitation is $330,000 for 2023

Additional resources:

Page Last Reviewed or Updated: May 2023
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