Simply put, the Internal Revenue Service (IRS) establishes different contribution limits for 401(k) contributions made by an individual separate from 401(k) contributions limits made by an employer match or profit-sharing contribution.
In this article, we’ll review the employee 401(k) contribution limits and employer 401(k) match and profit-sharing contribution limits. Additionally, we’ll explain the differences between different types of retirement accounts and the contribution constitution.
The 401(k) is a retirement savings plan protected by the U.S. Internal Revenue Code to create a retirement account for employees’ future benefits. The employee who signs up for a 401(k) must agree to have a percentage of your gross income paid directly into this account. Income tax will apply depending on the type of 401(k) plan you have.
The following chart defines the maximum current contribution you can choose to make yourself. Note that the 50+ year-old catch-up contribution is an additional top-off you can make if you are over that age, increasing your maximum contribution.