401k Contribution Limits and Catch-Up Maximums for 2011-2012

By Pinyo, on December 23, 2011

Based on 401(k) Resource Guide at IRS.gov, the combined total contribution you can make to all of your 401(k) plans (including traditional 401(k), Roth 401(k), and individual 401(k) plans) in 2012 increased by $500 to $17,000; but the catch-up contribution limit stays the same at $5,500. However, you may be limited by what your employer allows you to contribute. For example, if your salary is $40,000 per year and your employer only allows up to 20% of your salary to be used for 401(k) contribution, then your maximum is $8,000. Otherwise, the maximum legal limits allowed by the IRS are shown below.

401(k) Maximum Contribution Limit

The contribution limit remained unchanged from 2010 to 2011. Here are the current contribution limits:

401(k) Catch-Up Contribution Limit

If you are 50 years or older before the end of 2011, you may also be eligible to make “catch-up” 401k contributions in addition to your normal 401(k) contributions — assuming your employer allows for this (unfortunately, not all employers are required to do this). Here are the current 401(k) catch-up contributions limits:

Rules for Multiple 401(k) Plans

If you participate in more than one 401(k) plan — i.e., a Roth 401(k) and a Traditional 401(k), or multiple employers — the above 401(k) limits apply to the total amount regardless of the number of plans you participate in. The limits apply to your total combined contributions — specifically, your combined contributions across all plans cannot exceed the above limits.

Employer Contribution Limit and Matching Contribution

Some employers contributte additional amount to your 401(k) — often, these are called matching contributions. Fortunately, the matching contributions made by your employer are NOT counted toward your 401k contribution limits. In other words, if you contribute the maximum amount each year, you are still eligible to receive your employer’s matching contributions above and beyond these limits.

Individual 401(k)

For self-employed business owners who participate in an Individual 401(k) plan (also known as Solo 401(k)), there is additional piece of information that you must be aware of. With an Individual 401(k) plan, you can contribute the Employee portion out of your salary, and in addition, your company can contribute up to 25% of your W2 wages up to the Maximum Employer Contribution below.

For example, if you want to maximize your 401(k) contribution in 2012. You can pay yourself a salary of $132,000. You can then contribute $17,000 as an employee, and your company can match $33,000 as an employer for a maximum 401(k) contribution of $50,000.

Other Considerations

In addition to the basic information above, there are rules governing highly compensated employees (HCE) and specific rules impose by your 401(k) plan administrator. To understand the specifics that apply to you, be sure to review your employer’s plan documents and contact the plan administrator for more information.

Secondly, participation in your employer’s retirement plan limits how much you can contribute to your Traditional IRA. For more information, please take a look at Contribution Limits for Traditional and Roth IRAs.

Source: 401(k) Resource Guide – Plan Participants – Limitation on Elective Deferrals at IRS.gov.

Pinyo is the owner of Moolanomy Personal Finance and an entrepreneur with over 20 years of business experience. He is interested in business management, investing and wealth management. He has written for many online publications, including American Express Currency and U.S. News Money. You can follow him on Facebook and Twitter.