Derek Burnett
Derek Burnett is a Contributing Writer at Bottom Line Personal, where he writes frequently on health and wellness. He is also a contributing editor with Reader’s Digest magazine.
If there’s one single-most important piece of advice when it comes to saving for retirement, it must surely be, “Stash away as much as you possibly can.” By doing so, not only are you increasing the principal amount of your savings, but you’re also creating greater returns from the investment of those funds. So for those who have a 401K, the maximum contribution to a 401K is a very pressing question.
That’s why, for people who want to save very aggressively for retirement, it would be nice if there were no limit to the amount they could sock away each year. Alas, that’s not the case. Each year, the IRS announces a limit as to the dollar amount an individual may contribute to a 401(k). For tax year 2024, that figure is set at $23,000.
Each year, the IRS increases these maximums to keep pace with the cost of living. If you’re reading this article in 2025 or later, the maximum will likely be higher than 2024’s $23,000, which was a $500 increase from the $22,500 that the IRS set for 2023. Usually, the IRS announces the next year’s contribution limits in October or November.
The limit set by the IRS pertains to the funds that you yourself contribute. Some workers are fortunate enough to have employers who match their 401(k) contributions, often at a rate of 50 cents on the dollar. If you were in that situation, the $23,000 annual limit would mean that you yourself could contribute that full amount, with your employer still free to contribute its $11,500 in matching funds, so long as that amounted to less than 100% of your annual income. In addition to annual limits on employee contributions, the IRS sets a maximum for the combined employer-plus-employee contribution. That maximum for 2024 is $69,000, which, again, must be less than you make in a year from that employer.
If you happen to work with more than one employer that provides you with a 401(k), the $23,000 annual limit applies to the total put into all of your 401(k) accounts. In other words, you’re not able to put $23,000 into your account with Employer A, another $23,000 into your account with Employer B, et cetera. However, if you have different types of retirement accounts, such as a 401(k) and a Roth IRA, the money you put into your Roth account has no impact on the annual limit of your 401(k).
The IRS makes an exception for savers over 50 years of age. Their maximum contribution is greater, because they are nearing retirement age and must get serious about putting away money. For that reason, the limit for people over 50 is referred to as the “catch-up” contribution limit. For 2024, such employees may contribute an additional $7,500 to their 401(k)s, bringing their total annual maximum to $30,500. When employers provide matching funds to workers over 50, the combined employer-and-employee contribution limit amounts to $76,500.
Some employers allow aggressive savers to continue putting money into their 401(k)s after meeting the maximum contribution of $23,000. Unlike other contributions to a 401(k), however, these funds are paid with after-tax dollars. The IRS’s limit on such contributions is the same as its maximum for employer-plus-employee combined contributions. For 2024, that figure is $69,000 for most employees and $76,500 for workers over age 50. The exact amount of after-tax dollars you can contribute, then, will depend on whether your employer is matching your funds and, if so, at what rate.
It bears repeating that the best thing you can do for your retirement is to maximize your contributions each year. If you’re fortunate enough to be able to do that, do it with a little planning. When the new maximums come out each year, figure out what you’ll need to contribute with each paycheck so that you’ll hit but not exceed the maximum. At the end of the year, review what you’ve contributed to make sure you haven’t gone over the limit. If you have, the IRS requires that the excess be returned to you by tax day on April 15.
If you’re having trouble staying within the annual limits because you’d like to be saving more, consider setting up a Roth IRA in addition to your 401(k). It has different annual contribution limits, and the funds you put into it won’t count against your 401(k)’s annual maximum. Besides simply being able to save more, there are tax advantages to having both types of retirement account. To open a Roth IRA, you don’t go through your employer but rather to a financial services company such as Franklin, Fidelity, or Schwab. Because a Roth IRA is an independent account not tied to an employer, you’ll have greater control over how those assets are managed.
