401k Contribution Limits for 2023

Key Points

  • Employers can funnel $22,500 to 401k savings in the 2023 tax year. This increases the 2022 contribution limit to $2,000.
  • In 2022, the contribution limit for an individual retirement plan (IRA) is $6,000.

You may be curious about how much money you could contribute each year to your 401k. The Internal Revenue Service (IRS), which sets annual limits, recently announced 2023 limits.

When you are trying to figure out how much of your salary to save for retirement, it can be difficult to budget. Contributing the maximum annual 401k amount can make a big difference to your nest egg.

Below we will compare the 401k contributions limits for 2022 versus 2023. We will also examine employer-employee maximum combinations contribution amounts and highly compensated employees contribution limits.

Limits on 401k contributions in 2023

Let's start with what are contribution limits. The contribution limits are the maximum amount that an employee can contribute in a 401k allowed by the Internal Revenue Service. The maximum contributions refers to the combined amount that both the employer and employee can contribute in a given year.

The 401k contribution limit has been increasing incrementally in the past. They were typically around $500 per year. The 401k contribution limit has increased by $2,000.

Let's look at the latest 401k contribution limits.

Limits on 401k contributions in 2023 and 2022

401k Plan Limits



Comparison between the Two Years
Maximum salary deferral limit $22,500 $20,500 $2,000
Workers 50+ eligible for catch-up contributions $7,500 $6,500 $1,000
Maximum contribution amount $66,000 $61,000 $5,000
Maximum contribution amount, including catch-up contribution $73,500 $67,500 $6,000

These amounts are also applicable to Thrift Savings Plans, 403(b), and most 457 plans.

The IRS usually announces the official limits for next year in late November or early December. For all the latest updates, you can visit the IRS website to view the IRS 401k contribution limit limits.

Employer and employee 401k contribution limits

The maximum amount of 401k contributions you can make is limited to employer matching contributions, employer match contributions, employer nonelective contributions, and elective deferrals. These are all defined below.

  • Elective Deferrals: These are amounts you can choose to transfer from your paycheck to your employer's retirement plan.
  • Employer Matching Contributions: Employer Matching Contributions refers to contributions that your employer makes to your retirement account, if you make a contribution from your salary. Here's a common 401k matching plan formula: 50c per dollar up to 6% employee's salary. You don't get any money if you don't take advantage of the match, so it is always beneficial to contribute enough to receive your full employer match.
  • Employer non-elective contributions: An employer who makes a contribution to an employee's retirement plan, regardless of whether the employee contributes, is considered employer nonelective.
  • Inheritance: Inheritance is a form of employer contributions that you can take with you if you are unable to fully vested in your plan. Vesting is when you are able to control the money in your plan. Your company has the right to take your money if you aren't fully vested or you quit your job.

The catch-up contribution limit can be applied from the beginning of the year until the end of that year, as long as your age is 50 at the time you begin saving. Let's suppose you turn 50 on December 31, 2022. You still have the opportunity to receive the catch-up contribution for the whole year.

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Highly Compensated Employees 401k Contribution Limits

High-paid employees have different limitations than those who are not highly compensated.

What is the definition of a "highly compensated employee" (HCE)? How does this affect your 401k contribution limits and contributions? The IRS considers you a highly compensated employee for purposes of 401k retirement plans.

You will need to adhere to stricter contribution limits. To ensure you contribute the correct amount to your company plan, take a look into the IRS tests.

Limits on Roth vs. Traditional 401k Contribution

Many employers offer both a Roth and traditional 401k. Let's look at the differences between these account types to help you decide which one may be best for you.

  • Roth401k:A Roth401k is an employer-sponsored savings program in which you can put after-tax dollars towards retirement. A Roth 401k investment has a perk. You don't have to pay taxes upfront. This means you won’t have to pay taxes on any withdrawals you make after you turn 59 1/2. As long as your account has been in existence for at least five consecutive years. Your earnings and contributions are tax-free.
  • Traditional401k: An employer-sponsored plan that allows you to defer paying income taxes on retirement contributions.

Are you unsure if you should invest in one or both? If you aren't sure if your retirement income will be higher, you might consider a tax-diversified strategy. As long as your total employee contribution is not more than $20,500 in 2022 and $22,500 in 2023, you can contribute to both the Roth and traditional 401k plans.

What is the 401k contribution deadline?

What is the deadline for 401k contributions? The December 31st, 2022 is the deadline for 401k contributions.

The IRS will however allow you to make contributions to your IRA account up until the tax filing deadline for the following year, which is April 15, 2024.

The bottom line

You need to be aware of the 401k contribution limits to ensure you don't exceed them or contribute too little to reach your goals.

Personal finance, including your balance in 401k, is a personal decision. Personal Capital's average balance of 401k by age will help you see where you rank with your peers.

Experts recommend saving at least 20% of your salary to fund your long-term investments goals. Contributing at least to your employer's match is a smart idea. You have a greater chance of reaching your savings goals if you contribute more than your employer matches.

Continue reading What is 401k matching and how does it work?

Part of your financial plan should include planning for retirement. To get on the right path, you can start taking steps now.

  1. 65 Ways to Retire smart, a practical guide that includes insights from fiduciary financial advisers. This guide is completely free.
  2. Register for the Personal Capital Dashboard. These online financial tools are trusted and safe for millions of users. These tools allow you to view all your accounts, track your spending and plan for your long-term financial goals.
  3. Talk to a fiduciary advisor to get more information about your retirement savings strategies.

Personal Capital: Get started

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Frequently Asked Questions

What is the best precious metal to invest in?

This question is dependent on the amount of risk you are willing and able to accept as well as the type of return you desire. Although gold has been considered a safe investment, it is not always the most lucrative. For example, if you need a quick profit, gold may not be for you. If you have the patience to wait, then you might consider investing in silver.

Gold is the best investment if you aren't looking to get rich quick. If you are looking for a long-term investment that will provide steady returns, silver may be a better choice.

How can you withdraw from an IRA of Precious Metals?

First decide if your IRA account allows you to withdraw funds. Then make sure you have enough cash to cover any fees or penalties that may come with withdrawing funds from your retirement plan.

If you are willing to pay a penalty for early withdrawal, you should consider opening a taxable brokerage account instead of an IRA. This option will require you to pay taxes on the amount that you withdraw.

Next, determine how much money you plan to withdraw from your IRA. This calculation is affected by many factors, such as the age at which you withdraw the money, the amount of time the account has been owned, and whether your plans to continue contributing to your retirement fund.

Once you have an idea of the amount of your total savings you wish to convert into cash you will need to decide what type of IRA you want. Traditional IRAs permit you to withdraw your funds tax-free once you turn 59 1/2. Roth IRAs have income taxes upfront, but you can access the earnings later on without paying additional taxes.

After these calculations have been completed, you will need to open a brokerage bank account. A majority of brokers offer free signup bonuses, as well as other promotions, to get people to open accounts. To avoid unnecessary fees, however, try opening an account using a debit card rather than a credit card.

When it's time to make withdrawals from your precious-metal IRA, you'll need a place to keep your coins safe. Some storage facilities can accept bullion bar, while others require you buy individual coins. Either way, you'll need to weigh the pros and cons of each before choosing one.

Because you don't have to store individual coins, bullion bars take up less space than other items. However, each coin will need to be counted individually. You can track their value by keeping individual coins.

Some people prefer to keep coins safe in a vault. Others prefer to place them in safe deposit boxes. No matter what method you use, it is important to keep your bullion safe so that you can reap its benefits for many more years.

How does a gold IRA work?

People who wish to invest in precious metals can use Gold Ira accounts as a tax-free investment vehicle.

You can purchase gold bullion coins in physical form at any moment. You don't have a retirement date to invest in gold.

You can keep gold in an IRA forever. Your gold holdings will not be subject to tax when you are gone.

Your heirs can inherit your gold and avoid capital gains taxes. Your gold is not part of your estate and you don't have to include it in the final estate report.

To open a gold IRA, you will first need to create an individual retirement account (IRA). After you have done this, an IRA custodian will be assigned to you. This company acts as a middleman between you and the IRS.

Your gold IRA custodian can handle all paperwork and submit necessary forms to IRS. This includes filing annual reports.

Once you've established your gold IRA, you'll be able to purchase gold bullion coins. Minimum deposit required is $1,000 If you make more, however, you will get a higher interest rate.

When you withdraw your gold from your IRA, you'll pay taxes on it. If you're withdrawing the entire balance, you'll owe income taxes plus a 10 percent penalty.

You may not be required to pay taxes if you take out only a small amount. However, there are some exceptions. For example, taking out 30% or more of your total IRA assets, you'll owe federal income taxes plus a 20 percent penalty.

It's best not to take out more 50% of your total IRA investments each year. You could end up with severe financial consequences.

Is it a good retirement strategy to buy gold?

Although gold investment may not seem appealing at first glance due to the high average global gold consumption, it's worth considering.

Physical bullion bars are the most popular way to invest in gold. There are many ways to invest your gold. The best thing to do is research all options thoroughly and then make an informed decision based on what you want from your investments.

For example, purchasing shares of companies that extract gold or mining equipment might be a better option if you aren't looking for a safe place to store your wealth. If you are looking for cash flow from your investment, buying gold stocks will work well.

You can also put your money in exchange traded funds (ETFs). These funds allow you to be exposed to the price and value of gold by holding gold related securities. These ETFs typically include stocks from gold miners, precious metallics refiners, commodity trading companies, and other commodities.

What is a Precious Metal IRA?

An IRA with precious metals allows you to diversify retirement savings into gold and silver, palladium, rhodiums, iridiums, osmium, or other rare metals. These are called “precious” metals because they're very hard to find and very valuable. They make excellent investments for your money and help you protect your future from inflation and economic instability.

Precious metals often refer to themselves as “bullion.” Bullion refers only to the actual metal.

Bullion can be purchased via a variety of channels including online sellers, large coin dealers, and grocery stores.

An IRA for precious metals allows you to directly invest in bullion instead of purchasing stock shares. This ensures that you will receive dividends each and every year.

Unlike regular IRAs, precious metal IRAs don't require paperwork or annual fees. Instead, you only pay a small percentage on your gains. Plus, you get free access to your funds whenever you want.

Can the government take your gold

Because you have it, the government can't take it. You earned it through hard work. It belongs to your. But, this rule is not universal. You could lose your gold if convicted of fraud against a federal government agency. Your precious metals can also be lost if you owe tax to the IRS. You can keep your gold even if your taxes are not paid.


  • The price of gold jumped 131 percent from late 2007 to September 2011, when it hit a high of $1,921 an ounce, according to the World Gold Council. (aarp.org)
  • Gold is considered a collectible, and profits from a sale are taxed at a maximum rate of 28 percent. (aarp.org)
  • Instead, the economy improved, stocks rebounded, and gold plunged, losing 28 percent of its value in 2013. (aarp.org)
  • (Basically, if your GDP grows by 2%, you need miners to dig 2% more gold out of the ground every year to keep prices steady.) (smartasset.com)
  • This is a 15% margin that has shown no stable direction of growth but fluctuates seemingly at random. (smartasset.com)

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How To

Tips for Investing In Gold

Investing in Gold remains one of the most preferred investment strategies. There are many advantages to investing in Gold. There are many ways to invest gold. Some people purchase physical gold coins. Others prefer to invest their money in gold ETFs.

Before buying any kind of gold, you need to consider these things.

  • First, verify that your country permits gold ownership. If your country allows you to own gold, then you are allowed to proceed. You can also look at buying gold abroad.
  • The second is to decide which kind of gold coin it is you want. You can go for yellow gold, white gold, rose gold, etc.
  • Thirdly, you should take into consideration the price of gold. It is best to begin small and work your ways up. You should diversify your portfolio when buying gold. Diversify your investments in stocks, bonds or real estate.
  • Don't forget to keep in mind that gold prices often change. Therefore, you have to be aware of current trends.


By: Melissa Brock
Title: 401k Contribution Limits for 2023
Sourced From: www.personalcapital.com/blog/retirement-planning/401k-contribution-limits/
Published Date: Tue, 01 Nov 2022 15:00:06 +0000

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