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.
Maximum Employer contribution limits. Matching 401K or 403b contributions made by your employer are counted towards your annual contribution limit ($50,000). This means your employer’s 401K maximum contribution limit in 2012 is $33,000 ($50,000 – $17,000) 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, the maximum catch-up contribution limit or $5,500 (no change from 2011). These catch-up contributions are not subject to the annual general limits that apply to 401k plans. Hence in 2012, someone over 50 has a maximum 401K contribution limit of $55,500. 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.
2012 Maximum Employee and Employer 401K Contribution Limits and Catch-up Amounts
Source : IRS
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- When Can I Make Catch-Up Contributions to 401K, IRA, 403b and SIMPLE IRA Retirement Plans
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I would like to know if there is any provision for contributions to a 401 (k) plan in the current year to apply to the previous year. If so where can I find information on this issue.
Generally contributions to a 401K plan are only valid in the year they are made. However some employers do allow payments till Apr 15. However for an IRA or Roth IRA, you can make 2011 eligible contributions until Apr 17, 2012.
Andy, can you please explain your contradicting statements “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). ” vs. the next paragraph where you state: “Maximum Employer contribution limits. Matching 401K or 403b contributions made by your employer are NOT counted toward your annual 401k contribution limits.” Which one is it? Does the annual limit include employer matching or not? Am I reading this incorrectly??
Marie – Thanks for the great question and catch. The maximum annual limit does include the employer match, but not the catch-up contribution. So in 2012, the $50,000 limit is made up of an employee (your) maximum of $17,000 vs $33,000 employer limit. The catch up contribution for those over 50 is $5500.
I have updated the article to correct this.
If your employer does not contribute to your 401k, then you are better off maxing out your own IRA first. You have many more and usually safer options. In addition, if you work for a small business, you are at the mercy of your employer’s possible incompetence and negligence. My own employer is particularly irresponsible at keeping up with his fiduciary duties. Employee contributions are deposited to the fund on a completely haphazard basis. And short of quitting, there is nothing we can do about it and still stay on the boss’ good side. Does anyone know if what he is doing (or not doing) is illegal and how one would go about reporting him to the proper authorities? Personally I quit contributing to my 401k years ago.
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