What Are the Maximum 401(k) Contribution Limits?

An older couple discusses how best to maximize 401(k) contribution limits.
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A 401(k) is a retirement account offered by employers that also offers tax benefits. Both employees and employers can make contributions. Employees can opt to have their contributions automatically deducted from their paychecks, making it easy to build a nest egg.

Employees and employers can add funds up to the 401(k) contribution limits. How are 401(k) contribution limits determined? Toward the end of each year, the IRS decides on the limits for the following year.

Here’s GOBankingRates’ guide to how much you can add to your retirement funds.

401(k) Contribution Limits

The 401(k) contribution limits in 2020 increased for employees to $19,500. The 2019 limit was $19,000. Employees age 50 and over can make an additional, catch-up contribution of $6,500, making their total contribution limit $26,000 for 2020.

401(k) Employee Contribution Limits
Contribution 2019 Amount 2020 Amount Amount Difference
Maximum Employee Contribution $19,000 $19,500 +$500
Additional Employee Catch-Up Contribution if Age 50 or Older $6,000 $6,500 +$500
Maximum Employee Contribution if
Age 50 or Older
$25,000 $26,000 +$1,000

Unlike with an individual retirement account, you can only make 401(k) contributions for the current calendar year. For example, you can’t make a 401(k) contribution for 2019 in 2020.

When Leaving a Job

You’ll need to decide what to do with your 401(k). You can leave it with your previous employer, roll it over to a new 401(k) or IRA or withdraw it, which can have steep tax consequences. If you roll it over to a new employer, individual 401(k) contribution limits still apply.

Employer Matching

Your employer is allowed to match your 401(k) contribution. The 401(k) contribution limits in 2020 for an employer match have also increased.

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The total combined 401(k) contributions limit of both you and your employer is $57,000. The maximum percentage contribution to a 401(k) is 100% of your compensation. Your limit is either 100% of your compensation or $57,000, whichever is lower.

The maximum employer 401(k) contribution for 2019, along with employee contributions, was $56,000.

The catch-up contribution also applies to the overall limit, which is $63,500 in 2020.

401(k) Overall Contribution Limits
Contribution Limit 2019 Amount 2020 Amount Amount Difference
Maximum Limit $56,000 $57,000 +$1,000
Maximum Limit With Catch-Up Contributions $62,000 $63,500 +$1,500

Is There a Difference Between Roth 401(k) and 401(k) Contributions?

Roth 401(k)s work a bit differently than traditional 401(k)s.

Roth 401(k)s:

  • Use after-tax dollars
  • Have the same contribution limits as traditional 401(k)s

The advantage of a Roth 401(k) is that you don’t have to pay taxes when you withdraw funds in retirement.

401(k) Contribution Limits on Highly Compensated Employees

With the 401(k) tax advantages, there’s the potential for employees who make more to benefit more from deferring taxes. To ensure everyone’s treated fairly — and the IRS gets its fair share of taxes — the IRS put rules into place to limit how much highly compensated employees can contribute.

The IRS defines highly compensated employees as:

  • Individuals who owned more than 5% of the business at any time during the previous year
  • Individuals who made more than $125,000 in 2019 or $130,000 in 2020
  • Individuals who were in the top 20% of employees when ranked by compensation (this measurement is optional for employers)

Good To Know

Average 401(k) contributions by highly compensated employees can’t average higher than 2% more than average contributions of non­-highly compensated employees. The total contributions made by highly compensated employees also can’t be more than double the percentage of non-highly compensated employees.

If a highly compensated employee has exceeded the contribution limits, the employer can either refund the excess contributions or pay a 10% excise tax. Employers have 2.5 months to complete either option.

Adding More Funds to an IRA

The best option for contributing more to your retirement is to put additional funds into an IRA. You can contribute up to $6,000 ($7,000 if age 50 or older) in 2020. If you’re a highly compensated employee, you may not meet the criteria to deduct the IRA contributions from your taxes, though.

Tax Deductions on IRAs

To take a tax deduction on an IRA, you must make less than $75,000 if you file as single or less than $124,000 if you’re married filing jointly.

Exceeding 401(k) Contribution Limits

Going over 401(k) contribution limits isn’t the end of the world, but it can cause a few headaches. Notify your employer immediately if you’ve exceeded the limits. You’ll need to withdraw your excess contributions.

  • If you withdraw the excess by April 15 of the following year, it’s not reported again as part of your income.
  • If you withdraw the excess after April 15 of the following year, it’s reported again as part of your income, which means you get taxed twice.

Let’s say you contributed too much in 2019. The excess was counted as part of your income for the 2019 tax year. If you request the excess by April 15, 2020, you’re good to go. If you request it after April 15, 2020, you’ll need to report it as income on your 2020 taxes, even though you were already taxed on it in 2019.

Tips on Maximizing Retirement Savings

Even with the 401(k) contribution limits, company contributions help boost your retirement savings, and they lower your taxable income. Here’s how to make the most of them:

Ways To Maximize Your Contribution Limits

  • Pay attention to contribution guidelines. Stay below them and put any extra savings into an IRA.
  • Max out your match. Ideally, you’ll contribute enough to make the most of your employer match. If your employer matches up to 5%, aim to contribute that as well.
  • Increase your contributions. If you’re not contributing as much as you’d like, gradually increase your contributions each year. If you get a raise, put at least part of it in your 401(k).
  • Pay attention to vesting. Your contributions are vested right away. Your employer’s contributions may not be, which means that if you leave, you lose the employer funds.
  • Don’t leave it behind. Unless you’re thrilled with a previous employer’s 401(k), it’s best to roll it over to either a new 401(k) or an IRA.
  • Find more ways to save. If reaching your 401(k) annual max isn’t realistic, start small. You can save a lot by making small, daily changes to your savings routine.

The bottom line? Always be on the lookout for any opportunity to grow your wealth. You have control over these many moving pieces, so be sure to keep these in mind when creating the foundation for your future.

Mike Parker contributed to the reporting for this article.

This article has been updated with additional reporting since its original publication.

Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.

About the Author

Melinda Sineriz has a Bachelor of Arts in English from Miami University and a master’s degree from Bard. She worked in insurance for six years, educating clients on Medicare supplements, life insurance, long-term care and annuities. She enjoyed helping clients make good financial decisions during and after retirement.  She also worked in dental insurance, assisting clients with enrollment and understanding their benefits.