401(k) News and Investing
401(k) Contribution Limits for 2023 and Rule of Thumb on How Much to Contribute.
Employees can contribute (elective salary deferral) up to $22,500 to their 401(k) plan for 2023.
Anyone age 50 or over is eligible for an additional catch-up contribution of $7,500 for 2023.
The general limit on total employer and employee contributions for 2023 is $66,000 ($73,500 with catch-up).
Your company 401(k) plan is one of the easiest and most effective ways to save for your retirement. And its easy to automatically contribute directly from your paycheck into your 401(k) plan. There is a limit to how much you and your employer can contribute to your 401(k)-plan account. One way to increase your retirement fund savings beyond your 401(k) plan is to open and contribute to an Individual Retirement Account (IRA).
The basic employee contribution limit for 2023 includes all elective employee salary deferrals as well as any after-tax contributions made to a designated Roth account within your 401(k) or a Roth 401(k) plan.
If you have multiple 401(k) accounts, your total contributions to all of them—both traditional and Roth—cannot exceed that $22,500 limit. Any contributions you make to other types of retirement accounts, such as IRAs, do not affect your 401(k)-contribution limit.
The employee contribution, as described above, is $22,500 for 2023. The catch-up contribution rises to $7,500 if you are over age 50. That is a total of $30,000.
Another big benefit of participating in a 401(k) plan is that your employer may contribute to it on your behalf, as well, as in the case with C. Mack Solutions 401(k) Plan. Many employers match employee contributions up to a certain amount. Below is your Plan’s matching contribution formula.
Matching Contributions: The Employer will make a matching contribution on your behalf in an amount equal to: (i) 100% of your contributions that are not in excess of 1% of your compensation, plus (ii) 50% of the amount of your contributions that exceed 1% of your compensation but that do not exceed 6% of your compensation. The formula is a two-tier match. The first tier is based on 1% of compensation deferred to the plan and the second tier looks at the next 5% of compensation deferred into the plan. (2%, 3%, $4%, 5% and 6%). Anyone deferring 6% or more of their compensation will receive the maximum match of 3.5%. 100% of 1% plus 50% of the next 5% = 1% + 2.5% = 3.5%
Employers may also make elective contributions regardless of how much or little the employee contributes, up to certain limits. The limit on total employer and employee contributions for 2023 is $66,000. When you include the $7,500 catch-up contribution, that limit becomes $73,500.
Make the most of your yearly opportunity to save toward retirement by maxing out contribution amounts and receiving the maximum company match in your contributions. Moreover, be sure to take advantage of employer-matching contributions to boost your retirement savings each year.
To have a higher confidence level that you may have enough retirement funds to retire with the standard of living you currently have consider saving 15% at least each year. Fidelity Investments ran the numbers and determined that aiming to save 15% of income toward retirement annually—which includes any matching contributions or profit sharing an employer may make to a workplace retirement account like a 401(k) can help ensure that you can maintain your lifestyle in retirement. Starting early, saving regularly, maxing out your 401(k) contribution or contributing enough to fully benefit from company matching, increases the amount you save thereby increasing your confidence level that you may have enough to retire on time and once. When you retire at age 67, as a rule of thumb, you should have about ten times your current income in your retirement funds (401(k), IRA, Roth IRA, SEP IRA, etc.).