401k Contribution Limits

For employee-sponsored retirement accounts, the maximum amount of money that can be contributed by employees and employers is limited by the IRS. While contribution elections are often defined as a percentage of the entire salary, these are strict limitations, and the maximum limits apply regardless of your entire income.

Even if you earn $600,000 a year and want to contribute a small amount, say 5% to your 401K, the IRS’s contribution limits will restrict the maximum amount you can contribute to that particular plan.

In the example above, since the figure you chose to contribute would work out to $30,000 annually, you will probably have to reduce the percentage you contribute every month to remain within the contribution limits for your 401K plan.

Catch-Up Contributions

Youngsters with plenty of time before they retire can still make do, but if you’re already nearing retirement, you’ll need to add as much as you can to your nest-egg. Fortunately, the IRS allows participants closer to retirement to contribute a higher dollar-value ‘catch-up’ amount, so they can save more for the time when they are retired.

 

Here’s a table with 401K contribution limits for the last 5 years:

401K LIMITS201520142013201220112010
Elective Deferrals for 401(k)$18,000 $17,500 $17,500 $17,000 $16,500 $16,500
Defined Contribution Limits (Annual)$53,000 $52,000 $51,000 $50,000 $49,000 $49,000
Compensation Limits (Annual)$265,000 $260,000 $255,000 $250,000 $245,000 $245,000
Limits for Catch-Up Contribution$6,000 $5,500 $5,500 $5,500 $5,500 $5,500
Limits for Highly Compensated Employees$120,000 $115,000 $115,000 $115,000 $110,000 $110,000
NON-401K LIMITS
Elective Deferrals for 403(b)/457 $18,000 $17,500 $17,500 $17,000 $16,500 $16,500
Employee Deferrals (SIMPLE)$12,500 $12,000 $12,000 $11,500 $11,500 $11,500
Catch-Up Deferral (SIMPLE)$3,000 $2,500 $2,500 $2,500 $2,500 $2,500
Minimum Compensation (SEP)$600 $550 $550 $550 $550 $550
Compensation Limit (SEP/Annual)$265,000 $260,000 $255,000 $250,000 $245,000 $245,000
Wage Base (Social Security)$118,500 $117,000 $113,700 $110,100 $106,800 $106,800

Plan Limit Projections for the 2016 Tax Year

In accordance with IRC section 415, the limits are adjusted annually if needed, to accommodate for increases in cost of living. The limits for each year are announced around the end of October (typically in the third week) with adjustments.

 

Based on current information, 2016 contribution limits will likely remain the same (but the actual limits will only be announced later this month). The projected limits are:

401K LIMITS201620152014201320122011
Elective Deferrals for 401(k)$18,000 $17,500 $17,500 $17,000 $16,500 $16,500
Defined Contribution Limits (Annual)$53,000 $53,000 $52,000 $51,000 $50,000 $49,000
Compensation Limits (Annual)N/A$265,000 $260,000 $255,000 $250,000 $245,000
Limits for Catch-Up Contribution$6,000 $6,000 $5,500 $5,500 $5,500 $5,500
Limits for Highly Compensated Employees$120,000 $120,000 $115,000 $115,000 $115,000 $110,000
NON-401K LIMITS
Elective Deferrals for 403(b)/457 $18,000 $18,000 $17,500 $17,500 $17,000 $16,500
Employee Deferrals (SIMPLE)$12,500 $12,500 $12,000 $12,000 $11,500 $11,500
Catch-Up Deferral (SIMPLE)$3,000 $3,000 $2,500 $2,500 $2,500 $2,500
Minimum $600 $600 $550 $550 $550 $550
Compensation (SEP)
Compensation Limit (SEP/Annual)N/A$265,000 $260,000 $255,000 $250,000 $245,000
Wage Base (Social Security)N/A$118,500 $117,000 $113,700 $110,100 $106,800