Maximum Retirement Plan Contributions

Do you and/or your employer make contributions to a retirement plan, such as an IRA, 401k, 403b, SIMPLE, or SEP plan? What exactly do we mean when we refer to retirement plan contributions? Retirement plan contributions consist of the money paid into the account by employees, employers, and the self-employed. When you prepare and e-file your current year Tax Return on eFile.com, you do not have to worry about how your contributions affect your taxes. Once you answer a few simple questions, the eFile tax app will select the right retirement tax forms and schedules for you based on your answers. For example, the tax app will automatically calculate Saver's Tax Credit if you qualify for it.

Employee Contributions to Retirement Plans

You can contribute to your retirement account through your employer and/or on your own. There are four types of contributions that employees can make to retirement plans:

1) Elective Deferral Contributions

Also called salary reduction contributions, these are the most common types of contributions to retirement plans. You elect to have money deducted from your salary each pay period and contributed to your retirement account. Pre-tax dollars are contributed, which means that the money does not have any tax withheld from it before it is put in the retirement account. In most cases, a percentage of pay is contributed, but in some plans, you can contribute a set dollar amount. Money that is contributed in this way is not reported as taxable income. For each year, there is a limit on the amount of deferrals.

2) Designated Roth Contributions

A designated Roth contribution is similar to an elective deferral, except the amount deferred is taxable as normal income. You choose to contribute a set percentage or amount of your salary per pay period, but you use taxable income. You do not exclude Roth contributions from your income on your tax return. The main benefit of a Roth account is that qualified distributions are non-taxable.

3) After-Tax Contributions

Not all retirement plans allow after-tax contributions. These are generally non-Roth contributions that you choose to make in addition to your regular elective deferrals of salary. If your plan allows after-tax contributions, any contributions you make must be included in your taxable income. After-tax contributions may not be deducted, either.

4) Catch-up Contributions

Many, but not all, retirement plans allow catch-up contributions. If you are at least age 50 by the end of the year, you may be able to make additional, nontaxable, elective deferrals beyond the basic limit on contributions. If your plan allows it and you qualify, you can make these contributions up to the catch-up contribution limit even if you have made regular deferrals up to the regular limit.

Catch-up contributions are a good option for those who perhaps did not contribute much to their plans in the past, those who waited until later in life to start saving for retirement, and those who just want to ensure a comfortable retirement.

After the tax year, you may be issued a Form 5498, which reports your contributions. Form 5498 is an informational copy and does not need to be reported on your tax return.

Contribution Limit for Tax Year 2023

These contribution limits will apply to your 2023 tax return due in 2024.

• You will be able to contribute more money to your 401(k) during tax year 2023. The contribution limit has increased from $20,500 (the maximum contribution allowed for tax year 2022) to $22,500. The allowable income ranges for making deductible contributions to retirement plans, including to traditional IRAs, Roth IRAs, and for claiming the Saver's Credit, are being increased for tax year 2023.
• Detailed cost-of-living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2023.
• If you have a 401(k) or 403(b), your contribution limit will increase to $22,500. This is also true for most 457 plans and the federal government's Thrift Savings Plan.
• During 2023 you will be able to make an annual contribution of $6,500 to your IRA account if you have one. This is up from $6,000, which was the annual contribution limit for tax year 2022. However, IRA catch-up contribution limits do not benefit from cost-of-living adjustments; the limit remains at $1,000.
• Unlike with IRAs, for which the contribution limit does not increase on an annual basis to account for cost-of-living increases, the catch-up contribution limit for 401(k)s, 403(b)s, most 457 plans, and the Thrift Savings Plan DOES increase, and has been moved up to $7,500 for tax year 2023, up from $6,500 for tax year 2022. Remember that you are only eligible to make catch-up contributions if you are age 50 and over.
• If you are 50 years of age or older, your catch-up contribution limit for a SIMPLE plan has moved to $3,500 for tax year 2023, and increase of $500 from the 2022 limit of $3,000.
• If you have a traditional IRA, the phase-out range for deducting contributions to your IRA will increase for tax year 2023. This is also true if you are making contributions to a Roth IRA, whether you are filing as a single individual, as a head of household, or filing jointly with your spouse. For both traditional and Roth IRAs, you will want to review Notice 2022-55 for the specifics relevant to your personal situation.
• There is an income limit for the Saver's Credit for low- and moderate-income workers. For married couples (assuming you are filing your taxes jointly), this limit is $73,000; for heads of household, this limit is $54,750; for single individuals (or married individuals who are filing their taxes separately), this limit is $36,500.
• For tax year 2023, the maximum contribution you can make to a SIMPLE retirement account has increased to $15,500.

Employer Contributions

Employers can make two different kinds of contributions to retirement plans:

1) Matching Contributions

In most retirement plans, your employer can make contributions, or elective deferrals, to your account on your behalf. In some plans, employer contributions are mandatory; in other plans, they are discretionary (optional).

Elective deferrals by employers are called matching contributions because the employer matches a certain amount per dollar contributed by the employee. For example, your employer might contribute 50% of your contributions, which means an additional $0.50 for every dollar you contribute. The matching amounts vary according to plan and employer. Matching employer contributions are not taxable income (though the amount may be shown on your W-2).

2) Discretionary Contributions

Discretionary (AKA non-elective) employer contributions are allowed by some retirement plans. These are contributions made in addition to matching contributions at the employer's discretion. Such a contribution must be made equally to every employee covered by the plan; it cannot be made only to certain individuals. Discretionary contributions by employers are generally nontaxable income for you.

Is there a limit to the IRA contribution deduction?

If you are covered by a workplace retirement plan, your IRA contribution deduction may be limited based on your adjusted gross income (AGI) and filing status. The table below shows the deduction you may be able to claim based on your filing status and AGI—the eFile Tax App will determine this for you as you enter data, so you will never accidentally claim a deduction you are not entitled to nor miss a deduction you should have claimed.

Contribution Limits

The government imposes limits on how much money employers and employees (and the self-employed) can contribute to retirement plans. There is a maximum limit for each type of retirement plan—some change each year. The tables below summarize the applicable limits from 2015-2022 for most employer-sponsored retirement plans (not including pensions—see the pension plan limits). "Overall contributions" include all deferrals, employer contributions, and catch-up contributions. Different limits exist for defined contribution plans, so we recommend consulting your plan administrator for the exact figures.

IRAs

The IRA contribution limits are below; IRAs include catch-up contributions, similar to 401(k), 403(b), and 457 plans. A catch-up contribution is a payment only taxpayers aged 50 and older can make. The IRA contribution limit is the same from 2021, for 2022 at $6,000 for the year.

401(k), 403(b), and 457 Plans

For the following plans, the table is organized by tax year, compensation, deferral/contribution limits, the catch-up limit, and the overall contribution limit. Compensation is the maximum limit for calculating contributions; the deferral/contributions limits are the total amount an employee can defer or contribute to a retirement plan. The overall amount is the total possible amount when considering the employee's contributions and total employer contributions (typically, around 50% of the employee's contributions). The overall column excludes the additional, potential catch-up amount.

For example, a 60-year-old employee contributes and/or defers the maximum amount during 2022 of $20,500, plus the additional catch-up amount of $6,500, adding to a total of $27,000. Their employer can choose to help them reach the maximum 2022 limit of $68,000, but most will stay around 50%. For this, the employer would contribute an additional $13,500, leading to a total of $49,500, which is under the limit, so the employee would not have to worry about going over the limit.

For 2022, the annual deferral or contribution limit for 401(k), 403(b), etc. has increased by $1,000, setting the limit at $20,500 for 2022 contributions. 

SIMPLE Plans

SIMPLE IRA plans follow similar rules to traditional or Roth IRA limits. They also allow a catch-up contribution and are organized by tax year below. The SIMPLE contribution limit is $14,000 in 2022.

SEP Plans

SEP IRA plans have a single limit for a taxpayer, regardless of age or filing status. These plans are for the self-employed and allow business owners to make their own contributions to their retirement. SEP contributions are limited to $61,000 for 2022.

*Or 100% of your salary, whichever is less. For example, if you had a 401(k) plan in 2022, you could contribute 100% of your salary to it if you earned under $19,000 for the year. (For 403 plans, a different figure is used instead of your salary, a number based on the current value of your benefits.)

** For 403 plans, this figure is different and depends on your years in service.

***Or 25% of salary/compensation, whichever is less.

If Contributions are Over the Limit: If deferrals were made that are over the contribution limit, they are called excess deferrals. Excess deferrals should be reported to your employer or plan administrator. You may request that the amount of your excess deferrals be paid out to you. The plan will have until April 15 of the following year, at the latest, to pay you the total amount of your excess deferrals.

After this, one of two things will happen:

1. You withdraw the excess deferral amount on or before April 15 of the following year. In this case, the amount is not included in your gross income for the year and is not taxable income.
2. You withdraw the excess deferral amount AFTER April 15 of the following year. Then, the amount must be included in your taxable income for the year in which it was deferred or contributed. The income may then effectively be double-taxed: once when it is contributed and again when it is withdrawn later. Also, when you do withdraw the money, it may be considered an early withdrawal and come with a penalty. But if you leave the money in the plan indefinitely, the plan may no longer be considered qualified for tax benefits.

Pension Plan Limitations: Pension plans, or annuities, are a type of retirement plan, but they are not the same thing as a 401(k), an IRA, or other more common retirement plans covered above. See the contribution limits for pension plans.

More Retirement Tax Information

• Retirement Plans and Tax Benefits
• Retirement Plan Distributions
• Retirement Plan Contribution Limits
• Social Security and Taxes
• Contribution Limits on Pension Plans
• Saver's Tax Credit, Credit for Retirement Contributions.

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