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2012 IRS Maximum 401K Contribution Increase Announced

Last updated by on January 28, 2016

Update: The 2015 maximum 401K contribution has since been announced. The 2013, 2014, and 2016 401K maximum contribution amounts have also now been released since this post was written. What follows is for 2012.

The IRS 2012 401K maximum was officially announced, and there’s an increase in the contribution limit! Finally, some good financial news! Without further ado…

The Maximum 401K Contribution in 2012 is

$17,000! That’s right, we finally got an increase for the first time in 4 years from the IRS.

The 2009, 2010, and 2011 maximum 401K contribution limits had all been stuck at $16,500 prior to 2012 and 2013 increases. A 3% increase isn’t much, but I’ll take it. The last increase was when 2009′s 401K maximum had increased $1,000 over 2008′s $15,500 maximum.

403B and 457B plans will receive the same bump in limits in 2012.

The maximum 401K catch-up contribution per year for those over 50 years old, however, stays the same at $5,500 over the standard contribution limit in 2012.

The History of 401K Maximum Contributions 

2012 401K Maximum Believe it or not, the maximum contribution level has increased in all but six years going back to it’s beginning in 1987 (75% of the time). Three of those six years without an increase were the last three years.

It’s somewhat surprising we didn’t get increases while cost of living was seemingly trending upwards – but I guess that’s what happens when the government wants to encourage spending.

It’s also worth nothing that the maximum 401K contribution amount has never declined.

How to Max Out your 401K in 2012

If you would like to max out your 401K in 2012, take $17,000 and divide it by your total salary from your employer. For example, if you make $68,000 per year (includes bonuses), then take $17,000 and divide by $68,000 to calculate the percentage of your pay you would need to contribute to max out your 401K.

In the above example, it would be 0.25, or 25%. Next, work with your HR department or your 401K administrator update your 401K contribution percentage.

Going Beyond your 401K?

I realize not many folks will be able to contribute the maximum. If you do, however, it’s probably in the top 5 things you can do for your financial future, especially when a possible employer 401K match is at stake.

If you do max and want to contribute more, you can create a Traditional or Roth IRA. I moved both of mine to TradeKing, who has zero maintenance or inactivity fees and trades are only $4.95. If you have left an employer and have old 401K’s sitting around, you may want to consider a rollover. You’ll probably be saving money on fees in an IRA versus your 401K.

401k Discussion:

  • Do you plan on maxing out your 401K this year or in 2012?
  • Have you ever maxed out your 401K?

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About the Author
I am G.E. Miller, & this is my story. My goal is financial independence ASAP. If you share that goal, join me & 10,000+ others by getting FREE email updates. You can also explore every post I have written, in order.

  • ERHR says:

    I wish I had a 401k! But considering I’m not even maxing out my Roth IRA I suppose I don’t really need one. I dream of the day when I get an employer match of some kind.

  • Brandy says:

    2011 is the first year I have maxed out my 401k, I am excited about being able to put in a little more in 2012!

  • Art says:

    Same here.. going to max out 401k for first time ever….
    17k next year is the goal!

  • Ron Ablang says:

    Good for you.

    For the rest of us who are married w/ kids and/or just don’t make that much money… well at least we’re rich (and going to be) in other ways, right?

  • Kevin@RothIRA says:

    The increase is certainly good news, but as you said, most people aren’t able to hit the maximum. From an investment diversification standpoint, it might be best to shift some money over into a self-directed IRA since many 401k plans have limited investment options.

    From a tax diversification angle, it’s better still to contribute some to a Roth IRA, so that not all investment vehicles will be taxable at retirement.

    Higher contributions can help, but for most folks, working in some forms of diversification may be an even better play.

  • Terri says:

    I first maxed out my employer retirement plan in 2008 and have done so since, and will continue to do so, Lord willing. I have maxed out my Roth IRA’s since I started my first post-college job in 2000.

    • derezzed says:

      Heres a question…

      I can max out my 401k or my Roth IRA, but I don’t think I can do both (yet). However in 10 years I expect to be making over the max income that allows contributions to a Roth IRA. I have an employer match on my 401k (up to 6% of 80k) but not my Roth IRA… which one should I be putting money into?

      My options are:
      Max 401k and *maybe* put a small amount in the Roth
      Max Roth and still put money in the 401k (enough to max out my employer matching but nowhere near the amount needed to max the 401k)
      Some other split, hopefully taking advantage of my employer max.

      • Harvey says:

        You can still contribute to a Roth even if you make “too much” It just takes an extra step. All you have to do is open a traditional IRA to put your $ into. Then convert those funds to your Roth IRA. There’s not income limitations for Traditional to Roth conversions. The $ still gets where you want it. It’s a backdoor approach that gets you around the income limitations. Look it up or ask the holder of your IRA about it; they’ll say the same thing.

      • Bruce says:

        401k is pre-tax however the entire amount including growth is taxed as you withdraw. Presumably your salary, and therefore your tax rate will be lower when you are withdrawing (i.e. retired).

        Roth is post-tax so if your close to being barred from contributing to your Roth, I assume your tax rate is at least 30 cents on the dollar. The advantage of the Roth is the withdrawals are tax free, principal and growth.

        The general consensus is to avoid as many taxes as you can while you are making the greatest amount of money. Therefore your priorities should be #1 max out your 401k, #2 max your Roth (if you are eligible, if not follow advice described by other replier).

        (Traditional IRAs may be better if you have low income, but 401k still remains #1).

        Beyond the 401k and Roth/Traditional (which it sounds like you will not go beyond, but if you did), there are state college funds which could help shelter you from taxes. Most educated advisors will tell you to max your Roth prior to putting anything in an education IRA because you can always use your Roth towards education and you don’t have the severe limitations placed on education IRA’s.

        Lastly, if you ever leave your company or have a 401K from a previous employer, you should by all means roll it over to a IRA. A 401k is still in the control of your employer and it can be frozen by your company (aka Enron).

  • John says:

    the 401k is a corporate scam. It is based on market whims. In this severe recession/depression, one is lucky to get 2-3% each market IF that. Pensions are the way to go. Anything dependent on american market whims–good luck.

  • Maggie says:

    I plan to contribute 10% as I always do for the first 5 months so I can pay off my auto loan a year early, then I plan to max out after.

  • Andy Brodowski says:

    I have an option of 401k and ROTH 401k at work. Can i contribute to both? is so is the combined limit for both $17k or is it $17k each? Also, if I contribute to 401k ROTH what is the limit I can contribute to ROTH IRA? Is it still $5k in addition to the $17k 401k limit?

  • Art says:

    $17k total for roth and trad..
    Do a little of both as no one knows your tax bracket @ retirement.
    $5k is separate for IRA..
    For 2012 You can do $17k roth401/trad401/combination + $5k ira (check IRS limits to see if you are eligible).

  • Taking a Chance says:

    I’m thinking of doing the unspeakable, borrowing against my 401k to pay off ALL debt, ~$17k, except house/car. I plan to take a very short loan to do this.

    I understand the cons of doing this, but I will also be able to max out my 401k, which I have never done before. I will be in the habit of living off of less.

    • Taking a Chance says:

      Let me clarify in that I will be maxing my 401k contribution AND paying the 401k loan concurrently. By reducing the monthly credit card debt, I have more money to contribute to the 401k AND by contributing more, I lower my tax burden.

  • Wade says:

    If I need to contribute 25% to max out my 401k and get an employer match of up to 3%, do I then contribute 22% and have the employer match round out the 25% or would the employer match even be considered in the equation?

    • Gabe says:

      Your contribution is 25% REGARDLESS of employer match which is EXTRA and does NOT count towards your max contribution.

    • Gabe says:

      I have maxed out on 401K and IRA’s (as well as on my Keogh self employment account) for last 20-25 years and yes despite ups and downs of the stock market I have done well…close to 1 million USD. I am however switching from high stock allocations (70%) to much lower stock allocation (10-20%) in BOTH IRA and 401K and in my Keogh account as well as I am getting older and closer to retirement and with the slower economy and my “guess” that the double digit stock market returns of the 80’s and 90’s are far gone…. I have been lucky/blessed to be able to afford doing it for many years and have a supportive spouse and have learnt to be more “cautious with my nest egg” over the years as I hate to lose much and do not mind a lower but safer return and least risk of loss. My advice to those beginners: do the best you can to max in any retirement account 401K IRA (Roth IRA) and Keogh -if not max SOME contribution even $500/y – is better than none as long as you can you will NEVER regret doing that (I never IMAGINED I could do so well!!!). For those fearing the stock market ups and downs it is OK to max in all accounts and choose to be very conservative (diversified bond index with some high yield bond fund and emerging market bond fund to “boost return”) but please do NOT give up on building for your retirement just because you fear the stock market. There is nothing wrong in doing CD’s inside your IRA’s and 401K although todays’ annual CD returns 1-2.5% are quite meager… (I would not advise you to do JUST CD’s if you have > 10-15 years before you retire)… GOOD LUCK and KEEP YOUR FAITH!

  • derrunner says:

    I have maxed my 401k out for the last 13 years and now have $300,000 in my account. I still have 22 years to go before I hit 65. I have more than my 401k in my personal investment account as well. Secret – lived in a 4-plex I owned for several years and lived rent free – and saved what I would have been putting towards rent or mortgage. Also from the profits when I sold my investment properties.

  • Tina K says:

    Yes, maxed out my 401K in 2011 — hadn’t realized there WAS a max. Also maxed out my 2011 HSA (family insurance). I will max both again for 2012, and change my husband’s 401K contribution so that he, too, maxes out in 2012. It’s the first time we’re in this (financial) position, and we intend to take full advantage of it!

  • Jane says:

    I would like to get closer to maxing out my 401(k) by contributing 20% of my pre-tax pay but my employer has indicated that there is a limit on the percentage employees can contribute to the plan. Why would this be?

    • Ben says:

      The plan document governs the adminstration of the plan. When the employer set up the plan for the employees, they had to specify the definition of compensation, maximum contribution rates, whether loans would be allowed, vesting, etc. You should check with your employer to see what the maximum is or you can request a copy of the plan document or summary plan description which will outline the “rules” of the plan. Another option is to talk to the plan adminstrator (the person at the company who is responsible for all aspects of the plan) and try to appeal to have a higher maximum.

  • Ernie says:

    “Max out” is somewhat of a misnomer here. $17,000 is the maximum pre-tax amount that one may contribute, but the true maximum, pre- and post-tax is $50,000, including employee and employer contributions, but excluding catch-up contributions; up to the $250,000 maximum salary consideration.

  • Token says:

    “It’s also worth nothing that the maximum 401K contribution amount has never declined.”

    It’s worth nothing? Then why is this even included in the article?

  • Ellen says:

    Can a company offer a 401K and a pension at the same time

  • chris says:

    Am I allowed to contribute $17000 of my own money into a 401k and then have my company match take me over that amount? I get about $7000 free $$ from my company so therefore am I only allowed an additional $10k of my own money?

  • Rob says:

    Can my wife and I each contribute 17k into our 401k for a max of 34k as married couple? Can’t find info on this anywhere.

    • Dakota says:

      Yes, you can, Rob. I’m wondering if one spouse can contribute $22K while the other contributes $12K to equal the max. In other words, can you combine each spouse’s contributions to equal the $34K max?

      • Sarah says:

        No, each employee’s account is treated separately with the maximum allowable amounts. Each of you is entitled to $17,500 in 2013 unless you are 50 or older in which case you can each add $5,500 as catch-up contributions.

  • Sarah says:

    Yes, it is $17000 per person, so if you and your wife both have access to a 401k then you could do $34K as a couple, plus $5K each to an IRA or Roth IRA, so if you can swing it you could save $44K/year for retirement, plus company match, plus catch up contributions if you’re over 50. I can’t fathom being able to save that kind of money. Good job.

  • Dakota says:

    If a married couple filing jointly works for the same employer but has different incomes, can they max out their Roth 401Ks with one spouse contributing over the $17,000 max and the other spouse contributing less than the max to total $34,000 together?

  • Aloha! says:

    Early on in this posting trail you asked if anyone would be maxing out their 401K and the answer is yes. I max out my 401K, to include the $5,500 over 50 benefit and employee matching of 6%, yearly — normally a month or two before the end of the year. That’s when I’m lost as to what to do — contribute to a non-deductible IRA? A Roth IRA? Charitable donations? etc. Even at my age (55) I am only invested in aggressive stock and have never owned a bond. I also know that I should have changed investments a long time ago but alas…..

    Any suggestions you may wish to offer will be happily researched! To include moving current monies about. Thank you.

  • MississippiGuy says:

    I’ve been “self-employed” working for a law firm as a contract attorney for the past 1 and a half. During that time, I’ve had a SEP IRA. Before that I was a full time employee with the same firm and was regularly contributing to my 401k. I just came back on full time in September and have a couple of questions:

    (1) What do I do with the SEP? Do I have to roll it into something else or is it fine just humming along?

    (2) Is there any reason not to try and max out the 401k in the next three months (other than dramatically reducing my salary)? I’m inclined to do this and get the tax benefit for the year.

  • DW says:

    If I maxed out my 401K prior to end of year (November 2nd) do I have to change my contribuition elections for remainder of year or will my contributions be automatically adjusted once I hit the 17k?

    • Ben says:

      If your employer has set up the appropriate limits from the payroll system, the 401k contributions will automatically cap out at 17K; however, it would be a good idea to ask your HR/Payroll department about this and monitor the first check after you’ve maxed out the 401k. If you continue to defer, you will get the amount refunded during the compliance testing performed by the plan in calendar 2013.

  • Denise says:

    My employer puts a monthly contribution into a 457(b). I put my retirement savings into a 403(b). I read somewhere that 457(b)’s also have a yearly contribution limit of $17,000 BUT you are allowed to have both the maximum amount saved there AND also can save up to the $17,000 limit for a 403(b)). So $17,000 each for 457(b) and 403(b). Is that true?

  • Sarah says:

    Am I allowed to contribute ALL of my net pay from each paycheck until I hit the maximum annual limit in my employers 401k plan? Or is there a maximum percentage of gross wages stated by the government for these plans?

    • Bruce says:

      Is it worth noting the order in which you should max things out and why? [your situation may very]

      With any retirement plan, search for your best option in regards to risk level and investment options.

      HSA [Tax free or tax deferred]:
      1) Contributions: If payroll deduction it is pre-tax, if not it is post-tax but reduces the amount of your taxable income (same effect).
      2) Contribution limits: $3,250; Catchup [55+]: $1000.
      3) Withdrawals? At any age tax free for eligible medical expenses for you, spouse and eligible dependents.
      4) Penalties? 20% + taxed at your current tax rate [penalty waved after 65]

      401k [Tax deferred]:
      1) Contributions: Payroll deduction is pre-tax
      2) Contribution limits: $17,500; Catchup [50+]: $5000 [2013]
      3) Withdrawals? After 59 1/2 taxed at your current tax rate.
      4) Penalties? 10% + taxed at your current tax rate [exceptions apply]

      Traditional IRA* [Tax deferred]
      *Only if single income < $59,000 (full deduction) or $69,000 (partial deduction) 2013
      1) Contributions: Deductible
      2) Contribution limits: $5,500; Catchup [50+]: $1000 [2013]
      3) Withdrawals? After 59 1/2 taxed at your current tax rate.
      4) Penalties? 10% + taxed at your current tax rate

      Roth IRA* [Contributions post-tax, gains tax free]
      *If you weren't eligible for Traditional IRA deduction
      1) Contributions: Post-tax
      2) Contribution limits: $5,500; Catchup [50+]: $1000 [2013]
      3) Withdrawals? After 59 1/2 are tax free.
      4) Penalties? 10% + gains taxed at your current tax rate (but not contributions)

    • Bruce says:

      You are allowed to contribute all of your net pay which will be greater as the taxes are not attributed to the contribution. For instance if I make $6255 for a given pay period and I choose 100% contribution my contribution would be 6004.80. Why not 6255? They took out SSN and Medicare first. But no state or federal taxes were taken.

      I am a contractor and commonly use this method because I know I won’t have 12 or 24 equal payments (and yes I enjoy the free time).

      The maxes still apply however so you probably can’t do 100% every pay period. Additionally some companies limit the amount you can contribute to somewhere around 15%.

  • jay dub says:

    Fortunately, I am an employed individual that makes more than the $250k annual cap…I am being told that if all 401K contributions are not in before the 250k cap is reached then no more contributions can be made after the cap is reached. In other words, u must contribute all funds to your 401k that u want before reaching the cap. This sounds ludicrous.

    • Ben says:

      I would follow up with whoever is telling you that… because I think it would depend on how the plan document is stated. The 250k cap is imposed by the government and typically all income over 250k is ineligible compensation; however, if you say I want X% of your gross wage into the plan, I think you may be able to make an argument that it was your intent to max out your contributions. That being said, you only need to have your contribution at 7% to max out.

  • Kent says:

    When you say the max is $17,000 annually, does that include matching from the employer, or is it allowed for the employer match and personal contributions to be greater than $17,000?


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