[Updated with 2013 changes] I recently received a few questions regarding 401k retirement plans and contribution limits. The first thing to understand is that there are two main types of contributions that go into these plans. One is your contribution, or elective deferral, and the other is your employers, or matching, contribution. Secondly there are four annual contribution limits you need to be aware of : Your employee contribution (elective deferral or 402g) limit, catch-up contribution limits, employer contribution (415) limits and maximum annual contribution limits.
For 2012, the maximum employee (elective deferral) contribution limit across all 401k plans is $17,000 (vs. $16,500 in 2011). The 2012 maximum annual contribution is $50,000 (in 2011 it was $49,000), which includes elective deferrals, employer matching and discretionary contributions, but excludes catch-up contributions (see below). In addition, the amount of employee compensation (especially for higher income earners) that can be taken into account when determining employer and employee contributions was $245,000 for 2011 and $250,000 for 2012.
For 2013, the maximum employee (elective deferral) contribution limit across all 401k plans is $17,500 with the maximum annual contribution rising to $51,000. The amount of employee compensation (especially for higher income earners) that can be taken into account when determining employer and employee contributions rose to $255,000 for 2013.
Maximum Employer contribution limits. Matching 401K or 403b contributions made by your employer are counted towards your annual contribution limit. This means your employer’s 401K maximum contribution limit in 2012 is $33,000 (and $33,500 in 2013) or 100% of your salary, whichever is the smaller amount. Though most employers rarely give anywhere near the maximum, with most generally matching 3% to 6% of employee contributions.
Catch-up contributions. If you are age 50 or over at the end of the calendar year, you are permitted to make additional, “catch-up”, elective deferral contributions. For 2012 and 2013, the maximum catch-up contribution limit is $5,500. These catch-up contributions are not subject to the annual general limits that apply to 401k plans. The catch-up contribution you can make for a year cannot exceed the lesser of the annual catch-up contribution limit, or the excess of your compensation over the elective deferrals that are not catch-up contributions.