How Much To Contribute To A 401(k): Depends On A Variety Of Factors

401k Yearly Contribution Limits 2022

For this year, the government raised the contribution limits for individual 401k programs by $1,000 compared to last year. This puts the maximum limits for individual contributions as follows:

• Age 18-49: A person in this age group can contribute up to $20,500 this year for their traditional 401k program.
• Age 50+: A person over the age of 50 is allowed to contribute an additional $6,500 to their 401k program as a “catch-up” contribution, bringing the total permittable contribution to $27,000.

NOTE: The above figures do not include employer matching contributions. Combined, an employer and employee may contribute up to $61,000 if aged 49 or less, or $67,500 if over the age of 50.

Employer Match & Employee Contribution Max Amount

Some employers choose to give employees a matching contribution for their 401k programs. These are often structured as dollar-for-dollar matches up to a certain contribution level. A 3% threshold is common, meaning an employee would get a dollar contributed from the employer for each one they put in up to 3% of their salary, respectively.

On a $75,000 salary, for example, an employee could contribute up to $2,250 and receive $2,250 in matching funds from the employer on a 3% match. With the same salary, at a 6% match, the employee could contribute up to $4,500 and get an additional matching $4,500 from the employer. The employee is free to keep contributing past that level up to either $20,500 or $27,000, depending on their age, but the employer match typically stops at the threshold.

There are limits to how much an employer can match in any given year. However, the combined limit is $61,000 for those aged 49 or less and $67,500 for those 50 and older, meaning that most employees will not have to worry about reaching those annual limits due to the employer match.

High-Income Contribution Limits

The IRS limits 401k contributions for employees that surpass a high-income threshold. For 2022, the threshold is currently total compensation (not just salary earnings) of $135,000 or more. Also, a less common trigger for the high-income contribution clause is when an employee owns 5% or more of the total business interest in an enterprise.

A high-income employee is only allowed to contribute up to a set percentage of their income. This percentage is based on the amount of their salaries that non-high income employees are contributing to their 401k at that particular firm.

Due to this level being defined on a company by company basis, there is no set guideline for how much a high-income employee may be able to contribute, as it is variable. There can also be limitations on how much a company can contribute in matching funds to a 401k for high-income employees.

2021 Max Annual Contributions To 401k Plans

How have these contribution limits changed in 2022?

Here is a table which shows the comparative change between 2021 and 2022:

401(k) Plan Contribution Limits	2022	2021	Net Change
Amount allowed for people aged 18-49	$20,500	$19,500	+$1,000
Amount allowed for people aged 50+	$27,000	$26,000	+$1,000
Permitted employee catch-up limit for 50+	$6,500	$6,500	$0
Maximum combined amount for employee + employer, people aged 18-49	$61,000	$58,000	+$3,000
Maximum combined amount for employee + employer, people aged 50+	$67,500	$64,500	+$3,000

Going a little further back in time, in 2020, the base amount allowed for people between ages 18-49 was $19,000 in 2019 and $19,500 in 2020. The catch-up contribution for people aged 50+ was $6,000 in 2019 and increased to $6,500 in 2020.

These increases are generally based around changes in the inflation rate. With inflation now running at a higher than average rate, the maximum contribution limits for 401k programs may also rise at a faster pace in 2023 and beyond.

Percentage Of Income To Put Into A 401k

It’s common for workers to save less as a percentage of their income when they are just starting out in a career. Over time, as other expenses such as buying a home start to get under control, people tend to ramp up their savings rates.

There’s no reason to feel bad about starting off at a lower contribution level. And it’s frequently not necessary to ever hit the max contribution level and still reach one’s retirement goals. That being said, here’s a general set of numbers based around various annual salaries and contribution levels to give a sense of what sorts of contribution levels might be practical for one’s 401k:

Annual Salary	4% Contribution	8% Contribution	Max Contribution
$50,000	$2,000	$4,000	$20,500 (41%)
$75,000	$3,000	$6,000	$20,500 (27%)
$100,000	$4,000	$8,000	$20,500 (20%)
$125,000	$5,000	$10,000	$20,500 (16%)
$150,000	$6,000	$12,000	$20,500 (14%)

Percentage Of Paycheck To Contribute To 401k

It’s one thing to know what the contribution levels for a year should be at various percentages. However, that data may make more sense in the form of how much money to contribute per paycheck to hit these thresholds. Here are tables showing those figures for semi-monthly (24 pay periods per year) and monthly payroll schedules.

Semi-Monthly Paycheck Contributions

Annual Salary	4% Contribution	8% Contribution	Max Contribution
$50,000	$83.33	$167.67	$854.16
$75,000	$125.00	$250.00	$854.16
$100,000	$167.67	$333.33	$854.16
$125,000	$208.33	$416.67	$854.16
$150,000	$250.00	$500.00	$854.16

Monthly Paycheck Contributions

Annual Salary	4% Contribution	8% Contribution	Max Contribution
$50,000	$167.67	$333.33	$1,708.33
$75,000	$250.00	$500.00	$1,708.33
$100,000	$333.33	$666.67	$1,708.33
$125,000	$416.67	$833.33	$1,708.33
$150,000	$500.00	$1,000.00	$1,708.33

Bottom Line

Since the contribution limits for retirement programs change frequently, it’s worth doing a yearly check-up on allocation schedules for one’s retirement plans. By keeping up with each year’s latest numbers, it can help maximize every dollar of tax-sheltered investments that will go towards one’s retirement.