Takeaways
- The 401(k)-contribution limit for 2024 is $23,000 if you are under 50 years old.
- The IRS allows an extra catch-up contribution of $7,500 for those 50 or older.
- The 401(k)-contribution limit for 2025 is $23,500 if you are under 50 years old.
- 401(k) contributions can boost your retirement savings and decrease tax liability.
- Contributing to a 401(k) plan is often a cornerstone of sound retirement planning.
What Is a 401(k) plan?
Over the last several decades, defined benefit plans have decreased steadily while defined contribution plans, such as 401(k) plans, have increased significantly in popularity among employers. A 401(k) plan is a retirement savings plan employers offer to help employees save for retirement. If your employer offers a 401(k) plan, you can make tax-free 401(k) contributions to your plan each year. The IRS sets limits on these tax-free contributions each year.
If you meet the minimum contribution amounts set by your employer, you can also be eligible to receive matching contributions from your employer. These matching contributions are tax-free contributions your employer makes to your retirement savings account. Matching contributions are essentially free money and can help your savings compound quickly over time. The IRS also caps how much you and your employer can contribute to your account each year.
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2024 and 2025 Employee 401(k) Contribution Limits
| 2024 Limit | 2025 Limit | |
|---|---|---|
| Employee Contribution Limit | $23,000 | $23,500 |
| Catch-up Contribution Limit (For Those 50 or Older) | $7,500 | $7,500 |
| Total Employee Contribution Limit | $30,500 | $31,000 |
Source: Internal Revenue Service [1][2]
For the tax year 2025, the 401(k)-contribution limit for employees is $23,500, and for those eligible for the catch-up contribution (if you are 50 years or older), the catch-up limit is $7,500. The total contribution limit for employees for 2024 is either $23,500 or $31,000.
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The good news is that your employee contribution limits are cumulative for the year. As a result, if you have multiple 401(k) plans, the limit applies to your total cumulative contributions. If you change employers, you can still reach the maximum employee contributions at your new employer.
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Employee + Employer Combined 401(k) Contribution Limits for 2024 and 2025
To incentivize savings for retirement, almost all employers with a 401(k) program offer contributions in one form or another to employees. According to Vanguard, 95% of employers provide matching or non-matching contributions to employees [3].
This is terrific news for you and your retirement savings. However, like with individual contribution limits, the IRS caps how much you and your employer can collectively put into your 401(k) account each year.
| 2024 Limit | 2025 Limit | |
|---|---|---|
| Employee + Employer Contribution Limits | $69,000 | $70,000 |
| Total with Catch-up Contribution Limit (For Those 50 or Older) | $76,500 | $77,500 |
Source: Internal Revenue Service [1]
For 2025, the total amount you and your employer can contribute to your 401(k) is $70,000 or $77,500 for eligible employees 50 or older.
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What Happens If You Contribute Too Much to Your 401(k)?
Super savers focused on retirement savings can accidentally save too much in their 401(k) accounts. Excess contributions could happen if your automatic contributions don’t stop at the employee contribution limit (e.g., a system error). Or if you change employers and don’t report your prior 401(k) contributions for that year to your employer, you could accidentally contribute too much to your 401(k).
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If you realize you have made excess contributions, it is best to notify your plan administrator and Human Resources department. Luckily, you have until the tax filing deadline to correct the issue. These excess 401(k) contributions can be returned to you and included in your taxable income.
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Alternatively, you can report excess 401(k) contributions on Form 1099-R when you file your taxes. However, if you contribute too much, you could incur penalties and fines on unpaid income taxes based on your excess contributions.
Smart Summary
Saving for retirement is a smart money move. Getting into the habit of saving for retirement with a 401(k), Roth IRA, or Traditional IRA will help boost your net worth and prepare you to handle financial situations later in life. Consider consulting with a financial advisor and building a financial plan to help bolster your savings success.
(1) Internal Revenue Service. Retirement Topics: 401(k) and profit-sharing plan contribution limits. Last Accessed January 20, 2025.
(2) Internal Revenue Service. Retirement Topics: 401(k) and profit-sharing plan contribution limits. Last Accessed January 20, 2025.
(3) Vanguard. How America Saves 2022. Last Accessed January 20, 2025.
