401k 2023 contribution limit irs
What is the 401k contribution limit for 2023 as per the IRS?
Answer:
For the year 2023, the Internal Revenue Service (IRS) has set specific contribution limits for 401(k) plans, which are critical for individuals planning their retirement savings strategy. The 401(k) is a retirement-saving account offered by many employers, allowing employees to save and invest a portion of their paycheck before taxes are taken out.
Detailed Explanation:
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Employee Contribution Limit:
- The employee contribution limit for 2023 is set at $22,500. This amount is the maximum that an employee can defer from their salary into their 401(k) plan during the year. This limit was increased from the previous year’s limit of $20,500 to account for inflation and cost of living adjustments.
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Catch-Up Contribution:
- Employees aged 50 and older are eligible to make additional catch-up contributions. For 2023, the catch-up contribution limit is $7,500. This means that employees who are 50 or older can contribute a total of $30,000 ($22,500 + $7,500) to their 401(k) plan in 2023.
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Employer Contributions and Total Limit:
- Apart from employee contributions, employers can also make contributions to an employee’s 401(k) plan. The combined total of employee and employer contributions is subject to an overall limit.
- For 2023, the total contribution limit, including both employee and employer contributions, is the lesser of 100% of the employee’s compensation or $66,000.
Summary Table:
| Contribution Type | Limit for 2023 |
|---|---|
| Employee Contribution | $22,500 |
| Catch-Up Contribution (Age 50+) | $7,500 |
| Total Contribution Limit (Employee + Employer) | $66,000 |
Additional Considerations:
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Roth 401(k) Contributions:
- The limits mentioned also apply to Roth 401(k) contributions. Unlike traditional 401(k) contributions, Roth 401(k) contributions are made with after-tax dollars, but qualified withdrawals are tax-free.
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Highly Compensated Employees (HCEs):
- Contributions for Highly Compensated Employees (HCEs) might be subject to additional nondiscrimination testing to ensure that the plan benefits all employees fairly.
It’s essential for employees and employers to stay informed of these limits to maximize their retirement savings benefits and comply with IRS regulations. If you need personalized advice or specific details related to your 401(k) plan, it is recommended to consult a financial advisor or the human resources department of your employer.
Final Answer:
The 401(k) contribution limits for 2023 are $22,500 for employees, with an additional $7,500 catch-up contribution allowed for those aged 50 and older. The combined total contribution limit, including contributions from both employee and employer, is set at $66,000.