What’s the Maximum 401k Contribution Limit in 2022?

There are many benefits to contributing to a 401k plan: you can catch a break on your taxes, diversify your financial profile, and most importantly, a 401k can help you save up for your sunset years. But before you start contributing to your plan, you should take note of the 401k contribution limits in 2022 so that you’re in line with best practices and abiding by IRS 401k standards.

In this post, we’re talking about the 401k contribution limits for 2022, special circumstances that may impact your retirement plan, as well as diving into some other options you have to help you save up for retirement.

Use the links below to skip right to the 401k contribution limits, or read the whole post for a comprehensive overview.

• 401k 2022 Limits
  • Special considerations for 401k limits
• Breaking Down 401k Plans and Contribution Limits
  • Why are there limits on 401k contributions?
  • Can I contribute 100% of my salary to my 401k?
  • How much should I be saving in my 401k in 2022?
  • When do I get to use the money I’ve contributed to my 401k?
• Key Takeaways: 401k Plans in 2022

401k 2022 Limits

The standard max 401k 2022 limit is $20,500. This contribution limit applies to: 401k plans, 403b plans, the federal Thrift Savings Plan, and most 457 pension plans. This is an increase from the limit of $19,500 that was set for 2020 and 2021.

Below is a chart that further breaks down the 401k contribution limits for 2022 according to IRS.gov Notice 2021:61:

As for the $20,500 limit, this number includes any money you’ve had withheld from your paychecks (elective employee salary deferrals) as well as any contributions you’ve made to your 401k after taxes. Now let’s say you have multiple retirement plan accounts—like a traditional 401k and a Roth 401k—in this case, the $20,500 limit still stands. So, your total contributions to both accounts for the year should not exceed the 2022 contribution limit. However, your contributions to an IRA account are not included in the $20,500 limit.

Special considerations for 401k 2022 limits

Catch-up contributions

While $20,500 is the standard contribution limit for 2022, of course, there are some exceptions to the rule. For example, the IRS allows individuals that are 50 years or older to make contributions in excess of the $20,500 limit so that they’re able to speed up their savings as they near retirement. This is called a “catch-up contribution.” For 2022, the catch-up contribution limit for those 50 years old and over is $6,500.

Highly compensated employees (HCE)

Contrary to catch-up contributions, there are also some circumstances that might limit your retirement contributions even further than the standard rule. According to the IRS, highly compensated employees are those that earn more than $135,000 per year. If you fall into this category, your 401k contribution limits may depend on how much other employees within your company are contributing to their retirement plans. The IRS imposes these additional restrictions (known as nondiscrimination testing) to ensure that a company is not favoring their highly paid employees in regards to pension plans. We’ll discuss the purpose of contribution limits in a more general sense a little later on in this post.

401k contribution limits for employers

Some employers offer 401k plans where they match employee contributions to help them grow their retirement savings, these are generally referred to as 401k matching programs. For many employees, this opportunity is a huge perk, and many employers are jumping on the opportunity to help out their staff. In fact, in Q1 of 2019, Fidelity reported that the average 401k employer match contribution reached an all-time high at $1,780.

Employers don’t have a specific 401k contribution limit placed on them, but the IRS limits 401k contributions from all sources (including employer match) to $56,000. Let’s say you made your max 401k contribution at $19,000, and your employer matches you dollar for dollar.

$19,000 x 2 = $38,000

Since you’re still within the $56,000 threshold, your total contributions would be permitted according to IRS standards.

Breaking Down 401k Plans and Contribution Limits

Now that we’ve defined the 401k contribution limits for 2022, we can dig a little bit deeper and discuss some more specific questions you might have when building your retirement savings.

Why are there limits on 401k contributions?

You might be wondering why there are 401k limits in the first place, and you’re not wrong to question this stipulation. You’re contributing your own money after all, right?

Since 401k contributions have certain tax advantages, the IRS places a limit on how much you can put in your account to limit taxpayer payout and prevent wealthier employees from benefitting more than the average worker.

As we discussed before, the contribution limits can vary depending on the kind of retirement plan, age, and whether an individual is considered a highly compensated employee.

Can I contribute 100% of my salary to my 401k?

The 2022 contribution limit for 401k plans is $20,500, which means that you can technically defer all of your salary if it means that your contributions will still remain less than the $20,500 limit. However, keep in mind that certain employers may place their own limit on how much staff can invest in an employer-run 401k account.

How much should I be saving in my 401k in 2022?

There’s not a universal standard for how much you should invest in your 401k each year, or even how much you should have saved by the time you retire. The answer for you, ultimately depends on your cost of living, career, and what age you want to retire.

Use our retirement savings calculator to check your progress.

However, there are some guidelines for how much you should have in your 401k that can help you figure out if you’re on the right track toward enjoying your golden years.

• By age 30, you’ve had a little time to figure out your career path and hopefully you’ve been able to save up some money in your 401k, too. At this stage, you should aim to have about a year’s salary saved in your plan—so if you make $50,000 per year, you’d ideally want to have about $50,000 saved up for retirement.
• By age 40, you’ve likely seen some advancement in your career, and your annual income may have seen a boost as well. By age 40 you might strive for about three years worth of salary saved in your 401k.
• By age 50, you’re inching closer and closer toward enjoying your retirement. At this stage, you should consider having about five years worth of salary saved.

Use these stages as a guideline, but keep in mind there are multiple avenues to make retirement work for you. You might choose to contribute to a different type of retirement plan such as a 401k for millennials, IRA, Roth IRA, SIMPLE IRA, or a SEP IRA. Or, you might consider supplementing your retirement income by getting a part-time job or trying your hand at investing.

What we’re saying is: don’t panic if you haven’t saved as much as you planned on—or if you haven’t saved anything at all. It’s never too late to change your habits and improve your financial health.

When do I get to use the money I’ve contributed to my 401k?

One of the most common questions surrounding 401ks (other than their limits), is whether or not you can withdraw money from your account before you actually retire. The simple answer: yes. The money you’ve saved up in your retirement fund is all yours and you’re entitled to withdraw it whenever you please, but you might have to face some penalties if you do.

If you withdraw from your 401k account before you’re 59 ½, you may be hit with two different kinds of early 401k withdrawal penalties. For one, the money you take out will likely be subject to early withdrawal 401k fees imposed by your plan administrator. And secondly, the IRS considers all 401k withdrawals to be taxable income, but an early withdrawal could incur a 10% early distribution tax on top of the standard income tax rate.

Key Takeaways: 401k Plans in 2022

Whether you’re just starting out or you’ve already saved some money in your 401k, you should take note of the 401k contribution limits that apply to taxpayers in 2022. Use these tips to guide your savings strategy and help you reach your retirement savings goals.