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Rules Governing Practice before IRS

Retirement Topics - Contributions

A contribution is the amount an employer and employees (including self-employed individuals) pay into a retirement plan.

Limits on contributions and benefits

There are limits to how much employers and employees can contribute to a plan (or IRA) each year. The plan must specifically state that contributions or benefits cannot exceed certain limits. The limits differ depending on the type of plan.

IRA Contribution Limits

401(k) and Profit-Sharing Plan Contribution Limits

SEP Contribution Limits (including grandfathered SARSEPs)

SIMPLE IRA Contribution Limits

403(b) Contribution Limits

457(b) Contribution Limits

Defined Benefit Plan Benefit Limits

Catch-Up Contribution Limits

Basic elective deferral limit

The basic limit on elective deferrals is $19,000 in 2019, $18,500 in 2018, and $18,000 in 2015 - 2017, or 100% of the employee’s compensation, whichever is less. The elective deferral limit for SIMPLE plans is 100% of compensation or $13,000 in 2019 and $12,500 in 2015 - 2018. Catch-up contributions may also be allowed if the employee is age 50 or older.

If the employee's total contributions exceed the deferral limit, the difference is included in the employee's gross income.

Time for depositing elective deferrals

Employers must deposit employee contributions to the retirement plan’s trust or individual accounts as soon as they can reasonably be segregated from the employer’s general assets. The Department of Labor provides a 7-business-day safe harbor rule for employee contributions to plans with fewer than 100 participants.

If you haven’t deposited employees’ elective deferrals as soon as you could have, find out how you can correct this mistake.

Employer contributions

  • Employer matching contributions. If the plan document permits, the employer can make matching contributions for an employee who contributes elective deferrals (for example, 50 cents for each dollar deferred). Employer matching contributions can be discretionary (contributed in some years and not in others, depending on the company’s decision) or mandatory, as in SIMPLE plans and Safe Harbor 401(k) plans.
  • Employer discretionary or nonelective contributions. If the plan document permits, the employer can make contributions other than matching contributions for participants. These contributions are made on behalf of all employees who are plan participants, including participants who choose not to contribute elective deferrals.

Types of employee contributions

  • Salary reduction/ elective deferral contributions are pre-tax employee contributions that are a generally a percentage of the employee's compensation. Some plans permit the employee to contribute a specific dollar amount each pay period. 401(k), 403(b) or SIMPLE IRA plans may permit elective deferral contributions.
  • Designated Roth contributions are a type of elective contribution that, unlike pre-tax elective contributions, are currently includible in gross income but tax-free when distributed. 401(k), 403(b) and governmental 457(b) plans can allow them. If a plan permits designated Roth contributions, it must also offer pre-tax elective deferral contributions.
  • After-tax contributions are contributions from compensation (other than Roth contributions) that an employee must include in income on his or her tax return. If a plan allows after-tax contributions, they are not excluded from income and an employee cannot deduct them on his or her tax return.
  • Catch-up contributions If permitted by a 401(k), 403(b), governmental 457(b), SARSEP or SIMPLE IRA plan, participants who are age 50 or over at the end of the calendar year can also make catch-up elective deferral contributions beyond the basic limit on elective deferrals.

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