Retirement Topics - 401(k) and Profit-Sharing Plan Contribution Limits

Two annual limits apply to contributions:

  • A limit on employee elective deferrals; and
  • An overall limit on contributions to a participant’s plan account (including the total of all employer contributions, employee elective deferrals (but not catch-up contributions) and any forfeiture allocations).

Deferral limits for 401(k) plans 

The limit on employee elective deferrals (for traditional and safe harbor plans) is:

  • $19,000 in 2019 ($18,500 in 2018)
  • The $19,000 amount may be increased in future years for cost-of-living adjustments

Generally, you aggregate all elective deferrals you made to all plans in which you participate to determine if you have exceeded these limits. If a plan participant’s elective deferrals are more than the annual limit, find out how you can correct this plan mistake.

Deferral limits for a SIMPLE 401(k) plan

The limit on employee elective deferrals to a SIMPLE 401(k) plan is:

  • $13,000 in 2019 ($12,500 in 2015- 2018)
  • This amount may be increased in future years for cost-of-living adjustments

Plan-based 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 those 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:

  • $6,000 in 2015 - 2019 to traditional and safe harbor 401(k) plans
  • $3,000 in 2015 - 2019 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.

Catch-ups for participants in plans of unrelated employers

If you participate in plans of different employers, you can treat amounts as catch-up contributions regardless of whether the individual plans permit those contributions. In this case, it is up to you to monitor your deferrals to make sure that they do not exceed the applicable limits.

Example:  If Joe Saver, who’s over 50, has only one employer and participates in that employer’s 401(k) plan, the plan would have to permit catch-up contributions before he could defer the maximum of $24,500 for 2018 (the $18,500 regular limit for 2018 plus the $6,000 catch-up limit for 2018). If the plan didn’t permit catch-up contributions, the most Joe could defer would be $18,500. However, if Joe participates in two 401(k) plans, each maintained by an unrelated employer, he can defer a total of $24,500 even if neither plan has catch-up provisions. Of course, Joe couldn’t defer more than $18,500 under either plan and he would be responsible for monitoring his own contributions.

The rules relating to catch-up contributions are complex and your limits may differ according to provisions in your specific plan. You should contact your plan administrator to find out whether your plan allows catch-up contributions and how the catch-up rules apply to you.

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. The plan must then pay you that amount plus allocable earnings by April 15 of the year following the year in which the excess occurred.

Excess withdrawn by April 15. If you withdraw the excess deferral for 2018 by April 15, 2019, it is includable in your gross income for 2018, but not for 2019. The April 15 date is not tied to the due date for your return. However, any income earned on the excess deferral taken out is taxable in the tax year in which it is taken out. The distribution is not subject to the additional 10% tax on early distributions.

Excess not withdrawn by April 15. If you don't take out the excess deferral by April 15, 2019, the excess, though taxable in 2018, is not included in your cost basis in figuring the taxable amount of any eventual distributions from the plan. In effect, an excess deferral left in the plan is taxed twice, once when contributed and again when distributed. Also, if the entire deferral is allowed to stay in the plan, the plan may not be a qualified plan.

Reporting corrective distributions on Form 1099-R. Corrective distributions of excess deferrals (including any earnings) are reported to you by the plan on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.

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 (but not catch-up contributions)
  • employer matching contributions
  • employer nonelective contributions
  • allocations of forfeitures

The annual additions paid to a participant’s account cannot exceed the lesser of:

  1. 100% of the participant's compensation, or
  2. $56,000 ($62,000 including catch-up contributions) for 2019;  $55,000 ($61,000 including catch-up contributions) for 2018.

However, an employer’s deduction for contributions to a defined contribution plan (profit-sharing plan or money purchase pension plan) cannot be more than 25% of the compensation paid (or accrued) during the year to eligible employees participating in the plan (see Employer Deduction in Pub 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans).

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 2018, $18,500. 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, $18,500. He has enough earned income from his business to contribute the overall maximum for the year, $55,000. Greg can make a nonelective contribution of $55,000 to his solo 401(k) plan. This $55,000 limit is not reduced by the elective deferrals Greg made 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 $6,000 of elective deferrals for 2018. His catch-up contribution could be split between the plans in any proportion he chooses. Or, Greg may contribute the full $6,000 catch-up contribution to his plan. This is because, although he made nonelective contribution to his solo 401(k) plan up to the maximum of $55,000, the $55,000 limit is not reduced by the elective deferral catch-up contributions.

Compensation limit for contributions 

Remember that annual contributions to all of your accounts - this includes elective deferrals, employee contributions, employer matching and discretionary contributions and allocations of forfeitures to your accounts - may not exceed the lesser of 100% of your compensation or $56,000 for 2019 ($55,000 for 2018). In addition, the amount of your compensation that can be taken into account when determining employer and employee contributions is limited. The compensation limitation is $280,000 in 2019 ($275,000 in 2018).

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