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Contribution Limits

The IRS limits the amount of money that an employee and an employer can contribute to an employer-sponsored retirement account like a 401(k). Unlike contribution elections, which are generally discussed in terms of percentage-of-salary, the limitations are strict numbers that apply to everyone, regardless of income level.  Thus, if an employee makes $500,000 and wants to contribute a small percentage of his/her income, like 5%, he/she will be restricted by the contribution limits the IRS has set for the plan-type. Since 5% of $500,000 is $25,000, the employee will likely need to reduce his/her elected contribution percentage. 

Plan
2011
2012
2013   2014
Maximum yearly employee contribution 401(k), 403(b),
457 or Government TSP (under age 50)
$16,500 $17,000 $17,500  $17,500 
Maximum yearly employee contribution 401(k), 403(b),
457 or Government TSP (over age 50)
$22,000 $22,500
$23,000 $23,000
 Maximum total contribution 401(k), 403(b)
(cannot exceed 100% of employee salary)
$49,000 $50,000
$51,000 $52,000
 

2013 Contribution Limits Printable Version

The IRS will allow participants in some retirement plan types to make higher-dollar contributions as they near retirement – known as the “Catch-Up” provision. Though anyone in the specified age category will have higher contribution limits, these are called “Catch-Up” contributions because they are designed to help people boost their retirement savings as they get closer to retirement. Catch-up provisions vary between plan types. 

IRAs, which are individual retirement accounts, have income-based phase-outs: people whose annual taxable income reaches certain thresholds are limited in the amount of money they can contribute, or they are ineligible to deduct contributions to an IRA during that tax year. These limitations are unrelated to age or previous years' income.

Contribution limits refer to the legal IRS limitations. Some companies cap 401(k) contributions at amounts lower than official IRS contribution limits. There are numerous reasons a company would enforce such limitations, like cost, accounting or an outdated plan document.

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