According to the IRS, 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 2020 increases by $500 to $19,500. The catch-up contribution limit also increases from $6,000 to $6,500. 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 your 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 Contributions
If you are 50 years or older at the end of the calendar year, your plan may allow you to make “catch-up” contributions in addition to your normal contributions. Unfortunately, not all employers are required to do this, and only some plans allow catch-up contributions. Here are the current 401(k) catch-up contributions limits:
Rules for Multiple 401(k) Plans
The above 401(k) limits apply to the total contribution regardless of the number of plans. For example, let’s say you participate in more than one 401(k) plan — e.g., a Roth 401(k) and a Traditional 401(k), or plans from multiple employers. Your total combined contributions cannot exceed the above limits.
Employer Contribution Limit and Matching Contribution
Some employers contribute an additional amount to your 401(k). These contributions are called matching contributions. Fortunately, the matching contributions made by your employer are NOT counted toward your 401(k) 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.
For self-employed business owners who participate in an Individual 401(k) plan (also known as Solo 401(k)), there is an 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.
|Year||Maximum Employee Contribution||Maximum Employer Contribution||Maximum Combined Contributions|
|2020||$19,500 up to 100% of compensation||$37,500 up to 25% of compensation||$57,000|
|2019||$19,000 up to 100% of compensation||$37,000 up to 25% of compensation||$56,000|
- if your salary is $100,000, you can contribute $19,500 and your employer can contribute $25,000 (due to 25% cap)
- to contribute the maximum amount of $57,000, you’d have to earn $150,000 so that your employer contributes $37,500 and you can contribute $19,500
The catch-up contribution is separate and doesn’t count toward your maximum combined limit. Here is an example from the IRS for 2020:
Ben, age 51, earned $50,000 in W-2 wages from his S Corporation in 2020. He deferred $19,500 in regular elective deferrals plus $6,500 in catch-up contributions to the 401(k) plan. His business contributed 25% of his compensation to the plan, $12,500. Total contributions to the plan for 2020 were $38,500. This is the maximum that can be contributed to the plan for Ben for 2020
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.
Realize, too, that 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.
Pinyo Bhulipongsanon is the owner of Moolanomy Personal Finance and a Realtor® licensed in Virginia and Maryland. Over the past 20 years, Pinyo has enjoyed a diverse career as an investor, entrepreneur, business executive, educator, financial literacy author, and Realtor®.
Can an employee that qualifies for the Catch-up contribution contribute to that and the “regular” 401(K) at the same time throughout the year as long as they don’t exceed the limit on both combined for the year. Example, if someone qualifies for the catch-up contribution and they want to max what they can contribute can they elect (17500+5500)/26 = 884.61 flat deduction for the entire year. Does the law say that they have to reach the maximum normal contribution first before they can start contributing to the catch-up amount?