This article has been updated for 2022. The IRS has announced the 2022 maximum 401K contribution limit for employees, which is the max that workers can legally contribute to a 401K in a given calendar year. The 2022 maximum 401K contribution limit will be $20,500, which means an increase of $1,000 versus the 2021 maximum 401K contribution limit of $19,500. Read on for expanded details on the update, including catch-up contributions, employer maximum contributions, historical limits, and more..
The IRS adjusts maximum retirement account contribution limits according to changes in the consumer price index (CPI), and the CPI has recently seen large increases, year-over-year. Hence, the increase between 2021 and 2022.
The maximum 401K limit is set annually by the IRS and it applies to your personal employee contributions to both traditional 401Ks and Roth 401Ks (a shared total of the two types of accounts, if you have both). It is a component of the maximum employer 401K contribution (employer plans have their own higher limit, which includes employer + employee contributions). If you have self-employment income, this maximum also applies for the “employee” contribution portion of Solo 401Ks.
2022 Maximum 401K Contribution Limits
The base 2022 maximum 401K contribution limit is $20,500 (+$1,000 versus 2021).
As previously noted, similar pension plans, like the 403B, 457B, and government TSP have the exact same maximum contribution limit as the 401K.
2022 401K Catch-Up Contribution
The 2022 401K catch-up contribution is $6,500 (the same as 2021). This catch-up contribution also stays the same for 403Bs, 457Bs, and the government TSP. The catch-up contribution is in addition to the standard contribution limit, making the total contribution amount $27,000.
The catch up contribution is only available to those age 50 and older who are trying to “catch up” for retirement in their latter years.
Historical 401K Maximum Contribution Limits
How do these maximums compare to previous years? Here’s the IRS’s recent history on maximum 403B, 457B, TSP, and 401K maximum contribution limits over the last few years:
|Year||403B, 457B, TSP, & 401K Contribution Limits (under age 50):||403B, 457B, TSP, & 401K Contribution Limits (over age 50). Includes catch-up contribution:||Total Defined Contribution Limit (employee + employer):|
The max contribution limit has increased in all but nine years going back to its inaugural year in 1987 (over 75% of the time). Six of those nine years without an increase have happened since 2010 (2010, 2011, 2014, 2016, 2017, and 2021). It’s also worth noting that the maximum 401K contribution limit amount has never declined from one year to the next, though it technically could.
How to Max your 401K
If you would like to make the max 401K contribution (a wise move, especially if your employer offers a 401K match), you’ll need to first do some simple math.
In 2022, for example, take $20,500 and divide it by your total salary or expected wages from your employer. For example, if you make $82,000 per year (before taxes), then take $20,500 and divide by $82,000 to calculate the percentage of your pay you would need to contribute to max your 401K.
In the above example, the result would be 0.25, or 25%. Next, work with your HR department or your 401K administrator (often within your 401K account) to update your 401K contribution percentage.
You might not get there on day 1 (though that would be beneficial). Here are some tips to help you max your 401K:
- Start contributing to your 401K at the beginning of the calendar year, not the end. Aside from getting a head start, there could even be an investment benefit to front-loading your 401K.
- Increase your annual contributions by the same percentage or amount as your annual income increase.
- Use your employer’s match as motivation. It will have no impact on your personal maximum level, but getting the full match (if you are not already) is free money. Don’t leave it on the table or you will regret it later on.
401K Contribution Deadlines
Note that employer-sponsored 401Ks do not allow you to make contributions up through the tax deadline for a given year, as IRAs and HSAs do. The 401K contribution deadline for “employee” contributions is the end of the calendar year (December 31 for that year).
Solo 401Ks (aka Individual 401Ks) do have varying “employer” contribution deadlines that can extend beyond the end of of the calendar year, depending on the structure of the corporation and plan. My Vanguard Solo 401K has a contribution deadline for “employer” contributions that is the same date as the tax deadline (typically April 15 of the subsequent year).
What if you Over-Contribute to your 401K?
It is possible, particularly if you have worked at multiple employers, to over-contribute to your 401K. The maximum contribution limit is across all 401K type accounts combined. Don’t worry – this happens, and it is correctable. But you do need to correct it by certain dates in order to avoid an IRS penalty. Check out my article on over-contributing to your 401K for more info.
Taking your Retirement Contributions Further
Not everyone will be able to contribute the maximum 401K contribution. If you can, however, it is one of the best things you can do for your financial future, particularly when a possible employer 401K match is at stake. Matching funds are free money and can quickly boost your retirement outlook.
If you do contribute the maximum and want to add even more to your retirement, you can also create a Traditional or Roth IRA (note: the maximum IRA contribution is $6,000 for 2021/2022).
Additionally, if your employer allows it – you may be able to make after-tax contributions and complete a mega backdoor Roth conversion. This really can boost your retirement savings.
If you have changed employers and have old 401Ks sitting around, you may want to consider a 401K rollover to an IRA or your current 401K, in order to consolidate your 401Ks. You may be able to save money on fees in an IRA versus your 401K.
401K Maximum Contribution Discussion:
- Do you plan on making the maximum 401K contribution in 2022?
- How to Optimize, Improve, & Get the Most Out of your 401K
- The Best Retirement Account: Ranked by Contribution Priority
- The Maximum HSA Contribution
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