How Much You Actually Put Into Your 401(k) Each Year

Your contribution amount is set by you, up to an annual limit set by the IRS

You decide how much of your paycheck goes into your 401(k), within limits the IRS sets each year. Your employer deducts that amount from your gross pay before taxes are calculated, which lowers your taxable income for the year. The IRS limit for 2024 is $23,500 if you are under 50, and $31,000 if you are 50 or older (the extra $7,500 is called a catch-up contribution). Your plan documents may set a lower limit, and your employer may also cap how much you can contribute based on your salary.

The contribution limit changes most years. The IRS adjusts it for inflation, usually in $500 increments. You can find the current year's limit on the IRS website or in your plan's summary document, which your employer is required to provide.

Key Takeaways

• You choose your contribution percentage or dollar amount when you enroll, and it comes out of your paycheck before income tax is withheld.
• The IRS sets an annual limit ($23,500 for those under 50 in 2024) that applies across all your 401(k) accounts combined, not per employer.
• Your employer may match part of what you contribute, but employer matches do not count toward your personal contribution limit.
• You can change your contribution amount during open enrollment or when a may have access to life event occurs, such as a marriage or birth.
• If you contribute more than the IRS limit, your plan administrator will refund the excess, usually by April 15 of the following year.

How your contribution is deducted from your paycheck

When you enroll in your 401(k), you tell your employer what percentage of each paycheck to contribute, or you specify a dollar amount per paycheck. That amount is taken out before federal income tax, Social Security tax, and Medicare tax are calculated. This is called a pre-tax contribution, and it reduces the income you report to the IRS that year.

If your gross pay is $4,000 per paycheck and you contribute 10 percent, $400 goes into your 401(k) and only $3,600 is subject to income tax withholding. You pay Social Security and Medicare tax on the full $4,000, however—401(k) contributions do not reduce those taxes.

Your pay stub will show the contribution separately from your take-home pay. You should see a line for "401(k) contribution" or "elective deferral" and another line showing your net pay after that deduction.

The annual IRS limit and what counts toward it

The IRS limit applies to your contributions only—the money you choose to put in from your paycheck. Employer matches, employer profit-sharing contributions, and any other money your employer adds do not count toward your limit. This means if you contribute $23,500 and your employer matches $5,000, you have not exceeded the limit.

The limit is per person, not per employer. If you work two jobs and both offer 401(k) plans, your combined contributions across both plans cannot exceed the annual limit. If you exceed it, the plan administrator will identify the overage and refund it to you, usually by April 15 of the following year. The refund is treated as taxable income for that year.

Catch-up contributions are available only if you are 50 or older by December 31 of that year. If you turn 50 in December, you can make catch-up contributions starting in January of that year.

Employer matching and how it works

Many employers offer a matching contribution—they add money to your account based on how much you contribute. A common match is 50 percent of the first 6 percent you contribute, meaning if you put in 6 percent of your salary, your employer adds 3 percent. The match is assistance programs, but you have to contribute to receive it.

Matching contributions do not reduce your personal contribution limit. If your employer matches $5,000 and you contribute $23,500, your total account receives $28,500, but only your $23,500 counts toward the IRS limit. Some plans also have vesting schedules, which means you do not own the employer match immediately—you earn ownership over time, usually three to six years. Check your plan documents to see your employer's vesting schedule.

Changing your contribution amount during the year

You can change how much you contribute during your employer's open enrollment period, which is usually once a year. You can also change your contribution if you have a may have access to life event: marriage, divorce, birth or adoption of a child, significant change in salary, loss of spouse's health insurance, or change in your employer's plan. You must request the change within 30 to 60 days of the event, depending on your plan's rules.

If you do not change your contribution, the same amount continues to be deducted from each paycheck until you stop it or leave your job. Some plans allow you to change your contribution online through the plan's website or app; others require a form submitted to your HR department.

What happens if you contribute too much

If your contributions exceed the IRS limit, your plan administrator will catch it and refund the excess. The refund is usually processed by April 15 of the following year and is sent to you as a check or deposited into your bank account. The refunded amount is treated as taxable income in the year you contributed it, and you may owe taxes on it.

This is most likely to happen if you work multiple jobs with 401(k) plans and do not coordinate your contributions across them. If you know you will exceed the limit, contact your plan administrator or HR department to reduce your contribution before the end of the year. This prevents the refund and the tax complication that comes with it.

Roth 401(k) contributions and their limits

Some employers offer a Roth 401(k) option alongside the traditional pre-tax 401(k). With a Roth 401(k), you contribute after-tax dollars—the money comes out of your paycheck after income tax has already been withheld. Your contributions grow tax-free, and you pay no tax on withdrawals in retirement, as long as you meet certain conditions.

The annual contribution limit for a Roth 401(k) is the same as for a traditional 401(k): $23,500 for those under 50 in 2024. If your plan offers both types, your combined contributions to both cannot exceed the limit. For example, if you contribute $15,000 to a traditional 401(k), you can contribute only $8,500 to a Roth 401(k) that year.

Frequently Asked Questions

Can I contribute the full IRS limit if my salary is low?

No. Your contribution cannot exceed your gross compensation for the year. If you earn $20,000 annually, you cannot contribute $23,500 no matter what the IRS limit is. Your plan may also set a lower limit based on your salary or job classification.

What if I leave my job mid-year?

Your contributions stop when you leave. If you have already contributed up to the IRS limit at your old job, you cannot contribute to a new employer's 401(k) that same year without exceeding the limit. If you have not reached the limit, you can continue contributing at your new job, but your combined contributions across both employers cannot exceed the annual limit.

Does my employer match count toward the IRS contribution limit?

No. Only your own contributions count toward the limit. Your employer's match, profit-sharing, or other employer contributions are separate and do not reduce how much you can contribute from your paycheck.

Can I change my contribution amount more than once a year?

Yes, if you have a may have access to life event such as marriage, birth, or a significant salary change. Outside of those events, you can change your contribution only during open enrollment. Check your plan documents or ask HR what events may have access to.

What happens to my contributions if I get laid off?

Your contributions stay in your 401(k) account. You own them immediately—they are not subject to vesting. Your employer's matching contributions may be subject to vesting, so you may forfeit part of the match if you have not been employed long enough. You can roll your 401(k) to an IRA or your new employer's plan if they accept rollovers.