401k Plan Maximum Contribution Limits

Information for 401k Plan Trustees, Enrollment and 401k Transfer

401(k) Contribution Maximums

A 401(k) plan is a type of profit-sharing plan designed for employees to defer a portion of their salary, before tax, into a retirement savings account. Since these contributions are pretax, they actually generally reduce participants’ income taxes. These plans also allow employers to make deductible matching contributions, providing a great incentive for employees to participate.

With these incentives, however, there are some limitations – primarily in the form of annual maximum contributions into the 401(k) plan. These maximum contribution limits typically change every year, normally (but not always) increasing each January 1^st, based on the cost of living increase during the prior year. Since individuals may have more than one 401(k) plan, the maximum contribution limits refer to a combined maximum contribution into ALL 401(k) plans in which the individual participates.

For example, in 2008, the combined maximum contribution into all of an individual’s 401(k) plans was $15,500. That amount increased in 2009, 2010 and 2011 to $16,500 and is subject to a cost of living increase after 2011.

If a participant is age 50 or older, they may also be eligible to make “catch-up” contributions that are in addition to their regular 401(k) maximum contribution limits. These catch-up contributions, however, are also limited. For example, for the years 2009-2011, the amount of the catch-up contribution was $5,500.

There are also maximum contribution limits on the amount an employer may put into their employees 401(k) plans. In 2009, an employer could contribute up to six percent of an employee’s compensation into their plan.  What this means is that an employee with compensation of $100,000 could contribute a maximum limit of $16,500 on a pre-tax basis, and their employer could contribute an additional $6,000 for a total 401(k) maximum contribution that year of $22,500. In addition, if that employee was age 50 or over, he or she could have contributed another $5,500 in catch-up contributions, bringing their total contribution for that year to $28,000.

In addition to pretax contributions, an individual may also make after-tax 401(k) contributions. There are, however, limits on the total contributions made when adding the pretax and after tax deposits. For example, for 2009 and 2010, the total 401(k) maximum contribution is $49,000 or 100 percent of an individual’s compensation whichever is less.

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