Limits on Employee Contributions to Retirement Plans
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Limits on Employee Contributions to Retirement Plans
Employer retirement plans enable you to invest a large portion of your compensation each year into a tax-deferred account, where your money can continue to grow in the tax-sheltered account. Your employer sometimes can also contribute to this account.
Things To Know
- Employee contribution limits differ from those of employers.
- Your employer sometimes can also contribute to your account.
The Internal Revenue Code specifies different maximum annual contributions for both employees and employers. Here are the maximum allowable contributions for employees:
401(k) and 403(b) plans
If you participate in a 401(k) plan or 403(b) plan, you may elect to contribute up to the smaller of $23,500 or 100 percent of your compensation for 2025. That figure will be adjusted for inflation each year thereafter. You can also contribute an additional, "catch-up" contribution of $7,500 each year if you are age 50 or above. Starting in 2025, employees age 60 to 63 can make a catchup contribution of up to $11,250 instead.
SIMPLE IRAs
If your employer offers a SIMPLE IRA and you do not participate in other employer plans, you may contribute a maximum of $16,500 for 2025. If you are age 50 or above, you can make a "catch-up" contribution each year—allowing an additional $3,500 for 2025. Starting in 2025, employees age 60 to 63 can make a catchup contribution of up to $5,250 instead. These amounts are subject to annual adjustment for inflation.
SEP IRAs
If you participate in a SEP IRA plan created after 1996, your employer—but not you—may make contributions to your plan. Pre-1997 SEPs, however, can continue to accept contributions, in the form of employee salary reductions of up to $23,500 (indexed for inflation). The total contribution allowed to a SEP IRA is the lesser of $70,000 in 2025 or 100 percent of compensation actually paid.
Keogh (HR-10) plans
If you participate in a Keogh plan, you generally may not make contributions in addition to those made by your employer.
Keeping track of your allowable contributions enables you to take full advantage of your employer retirement plan benefits.