401k Limits Crash Course

After writing on What is a 401k, an article on the 401k contribution limits seemed appropriate.  This post will explain how the limits work and how you can apply them to your own situation.  The specific limits for whatever year you are interested in are at the bottom.

The 401k is one of the more complicated investment vehicles there is, but most of the rules affect employers rather than most people.  That being said, this article will focus on the 401k limits for people contributing to their personal 401k.  Remember that everything in this article is in terms of one person, so if you are married, these limits are for both of you individually.

401k Limits

Like IRAs, the 401k has limits put on it every year by the IRS that restrict the amount you can contribute to it.  However, unlike an IRA this limit is much higher and you don’t necessarily have to max it out every year to make significant progress towards your retirement savings goal.

If you want to see the year-specific limits simply scroll down or use one of these quick links:

• 401k limits 2012
• 401k limits 2013

401k Contribution Limits

Your 401k contribution limits are composed of three different sections.  The first section is a general contribution limit that is imposed on everyone with a 401k.    Everyone has this basic limit, meaning that you can’t contribute more than this out of your own income.

In many cases, you may have an employer match plan for your 401k, where if you contribute to your savings account they will match a certain percentage (it can be greater than 100% in rare cases).  Because of this aspect of the 401k, there is a second limit, referred to from now on as the Total Contribution Limit.

Finally, if you are over 50 years old there is a third limit, often referred to as a “catch-up” contribution limit.  This is to help anyone that started saving for their retirement a bit late, so that they can contribute a little extra.  Please note however, that the total contribution limit is still the same, you just have the option of contributing more than the basic limit out of your personal income.

401k Limits 2012

Before we get into the limits I would like to remind you to freshen up on rules for your 401k before or after you determine your limits.  The 401k limits 2012 have either increased or stayed the same from the past year as typically expected.  The basic limit for 2012 is $17,000, which is up $500 from 2011.  This is the limit that everyone shares no matter what age.

If you are over 50 however, you have the catch-up limit to add to the basic limit, and in 2012 the catch-up amount is still $5,500, the same as last year.  This means that excluding an employer match, if you are over 50 you can contribute 17,000+5,500 which is a total of $22,500.

Finally, your total contribution limit in 2012 for your 401k is $50,000, up $1,000 from 2011.  This is the total amount between your personal contributions and your employer matched contributions, regardless of age.

If you aren’t sure if you are going to contribute to your 401k, I would suggest looking at Borrowing from your 401k to get a complete picture on your options.

401k Limits 2013

The 2013 401k limits have now been released by the IRS, and there are some very positive changes.  As always I recommend refreshing yourself on 401k rules after you determine your limits.  Continuing with the limit categorization method for this post so far I will go through the changes.

For the 2013 tax year you will be able to contribute $17,500 as your basic limit, which is up another $500 from 2012 (see above section).  Just a reminder, this limit applies for everyone.

The catch-up limit for anyone over 50 is still the same at $5,500, which gives a personal 401k contribution limit for anyone over 50 as $23,000 in 2013.

Last but not least, the total limit (between you and your employer), is $51,000.  Compared to 2012 this has gone up another $1,000, which is always nice.

Just a reminder that this page will always reflect changes as soon as possible (for the 2013 401k limits or any future year), so feel free to bookmark it and check back in whenever you are interested in the 401k Contribution Limits.