Retirement Topics - 401(k) and Profit-Sharing Plan Contribution Limits
Two separate annual limits apply to contributions:
- A limit on employee elective deferrals; and
- An overall limit on contributions to a participant’s plan account (employer contributions, employee elective deferrals, and any forfeiture allocations).
Deferral limits for traditional and safe harbor 401(k) plans
The limit on employee elective deferrals is:
- $17,000 in 2012
- $17,500 in 2013
- The $17,500 amount may be increased in future years for cost-of-living adjustments
Generally, all elective deferrals made to all plans in which you participate are aggregated to determine if you have exceeded these limits.
Deferral limits for a SIMPLE 401(k) plans
The limit on employee elective deferrals to a SIMPLE 401(k) plan is:
- $11,500 in 2012
- $12,000 in 2013
- This amount may be increased in future years for cost-of-living adjustments
Other restrictions on elective deferrals
These restrictions may further reduce the maximum allowable elective deferrals:
- Your plan‘s terms may impose a lower limit on elective deferrals
- If you are a manager, owner, or highly compensated employee, your plan might need to limit your elective deferrals to pass nondiscrimination tests
Catch-up contributions for participants age 50 and over
If permitted by the 401(k) plan, participants who are age 50 or over at the end of the calendar year can also make Catch-up contributions. The additional elective deferrals you may contribute is:
- $5,500 for 2012 and 2013 to traditional and safe harbor 401(k) plans
- $2,500 for 2012 and 2013 to SIMPLE 401(k) plans
- These amounts may be increased in future years for cost-of-living adjustments
You don’t need to be “behind” in your plan contributions in order to be eligible to make these additional elective deferrals.
Treatment of excess deferrals
You have an excess deferral if the total of your elective deferrals to all plans is more than the elective deferral limit for the year. You may notify your plan administrator before April 15 of the following year that you would like the excess deferral amount, adjusted for any gains and losses, to be paid from the plan.
Overall limit on contributions
Total annual contributions (annual additions) to all of your accounts in plans maintained by one employer (and any related employer) are limited. The limit applies to the total of:
- elective deferrals
- employer matching contributions
- employer nonelective contributions
- allocations of forfeitures
The annual additions paid to a participant’s account cannot exceed the lesser of:
- 100% of the participant's compensation or
$50,000 ($55,500 including catch-up contributions) in 2012 ($51,000, or $56,500 including catch-up contributions, in 2013)
There are separate, smaller limits for SIMPLE 401(k) plans.
Example 1: Greg, 46, is employed by an employer with a 401(k) plan and he also works as an independent contractor for an unrelated business. Greg sets up a solo 401(k) plan for his independent contracting business. Greg contributes the maximum amount to his employer’s 401(k) plan for 2012, $17,000. Greg would also like to contribute the maximum amount to his solo 401(k) plan. He is not able to make further elective deferrals to his solo 401(k) plan because he has already contributed his personal maximum, $17,000. He has enough earned income from his business to contribute the overall maximum for the year, $50,000. Greg can make a nonelective contribution of $50,000 to his solo 401(k) plan. This limit is not reduced by the elective deferrals under his employer’s plan because the limit on annual additions applies to each plan separately.
Example 2: In Example 1, if Greg were 52 years old and eligible to make catch-up contributions, he could contribute an additional $5,500 of elective deferrals for 2012. His catch-up contribution could be split between the plans in any proportion he chooses. His maximum nonelective contribution to his solo 401(k) plan would remain $50,000 even if he contributed the full $5,500 catch-up contribution to this plan.
In addition, the amount of your compensation that can be taken into account when determining employer and employee contributions is limited. In 2012, this limit is $250,000; it's $255,000 in 2013.
Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans)
Publication 525, Taxable and Nontaxable Income