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Important Retirement Contribution Limits

February 24, 2020 · 6 minute read

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Important Retirement Contribution Limits

By saving and investing for retirement, you are working toward financial freedom—a goal worthy of your time and effort.
As you may know, there are benefits to using an account designed specifically for retirement, such as a 401(k) plan or Roth IRA.

What benefits, you ask? First, some company retirement programs may offer a match program. Second, these accounts are designed to hold investments so that you can earn compound returns.

Retirement accounts also have tax advantages. Because these accounts have special tax treatment, there’s a limit to how much money the IRS allows you to contribute to one of these accounts in a given year.

These retirement contribution limits vary depending on the type of account you use. For example, 401(k) contribution limits are different from IRA contribution limits.

To build a hearty long-term financial plan, you’ll likely want a solid understanding of your retirement plan options. Below is a summary of these retirement accounts and their respective annual retirement contribution limits.

What Are Retirement Contribution Limits?

Ever heard someone say that they have “maxed out” their retirement account? Maxing out means contributing the total amount allowed by the IRS in a given year. In some cases, you may be able to contribute more than the allowable maximum, but that money will not qualify for the tax advantages of the money within the retirement contribution limit.

Generally, the IRS increases retirement contribution limits every few years as the cost of living increases. The 2019 contribution limits were increased from the previous year.

There are a lot of different types of retirement accounts, and each comes with its own nuances, which can make it hard to keep them straight.

Hopefully this list of the account types along with their contribution limits will help.

Note that if you have any questions about what type of account is best for you, or whether you can use multiple accounts concurrently, you may want to consult a tax professional.

401(k) Contribution Limits

A 401(k) plan is a tax-deferred retirement account that is typically set up through a person’s employer, usually as part of a benefits package. With a 401(k) plan, the employee can opt to have a certain percentage of their salary withheld from their paycheck on a pretax basis.

Individual 401(k) plans—also known as solo 401(k) plans—are becoming more popular. These accounts are available to people who are self-employed and have an employee identification number (EIN).

Employee contribution limit: $19,000

Plans may allow for catch-up contributions for employees age 50 and over.

Catch-up contribution limit: $6,000 (for a total of $25,000 in employee contributions)

Some employers may offer a company match in their 401(k) plans. A typical match scheme would see employers match around 3% of an employee’s salary when that employee contributes 6% to the plan. The company match plan is determined by the employer.

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Employer contributions to a 401(k) do not count toward the employee’s contribution limits. But instead of putting a cap on how much the employer alone can contribute, there’s a total contribution limit that includes both the employer and employee contributions.

Total employer plus employee contribution limit: The lesser of 100% of the employee’s compensation or $56,000—if the employee is eligible for catch-up contributions, then it would be $62,000.

403(b) Contribution Limits

A 403(b) plan plan is similar to a 401(k) but is offered to employees of public schools, nonprofit hospital workers, tax-exempt organizations, and certain ministers.

Employee contribution limit: $19,000

Catch-up contribution limit: $6,000 for employees 50 and older, and potentially another $3,000 for employees of any age who have been in service for 15 or more years. There is a $15,000 lifetime limit for the latter catch-up provision. It may be possible to qualify for both catch-up provisions; if you think you qualify, check with the plan or your CPA to be sure.

Total employer plus employee contribution limit: The lesser of 100% of the employee’s compensation or $56,000—if the employee is eligible for catch-up contributions, then it would be $62,000. It is important to keep in mind that some 403(b) plans have mandatory employee contributions. These mandatory contributions are made by the employee, but since you do not have a choice do not count towards the $19,000 limit described above. If you are part of a plan like this you might actually be able to contribute $19,000 plus the mandatory contributions.

457(b) Contribution Limits

A 457(b) plan is similar to a 401(k) plan but for governmental and certain nonprofit employees. Unlike a 401(k), there is only one contribution limit for both employer and employee.

Total employer plus employee contribution: $19,000

Catch-up contribution limit: If permitted by the plan, a participant who is within three years of the normal retirement age may contribute the lesser of twice the annual limit ($38,000 in 2019) or the basic annual limit ($19,000) plus the amount of the limit not used in prior years.

Thrift Savings Plan (TSP) Contribution Limits

A TSP is similar to a 401(k), but for federal employees and members of the military.

Employee contribution limit: $19,000

Tax-free combat zone contributions: Military members serving in tax-free combat zones are allowed to make the full $56,000 in employee contributions.

Catch-up contribution limit: $6,000 (for a total of $25,000 in employee contributions)

Total employer plus employee contribution: The lesser of 100% of the employee’s compensation or $56,000—if the employee is eligible for catch-up contributions, then it would be $62,000.

Traditional IRA Contribution Limits

The traditional IRA is a tax-deferred account that is set up by the individual. IRA stands for individual retirement account. Unlike workplace retirement plans, IRA accounts tend to have lower contribution limits. These contribution limits are combined totals for both your traditional and Roth IRAs.

Contribution limit: $6,000

Catch-up contribution limit: $1,000 (for a total of $7,000) for those age 50 or over

Additionally, there are income limits for tax deductions on contributions that vary based on whether or not you are covered by a retirement plan at work.

Roth IRA Contribution Limits

Similar to a traditional IRA, a Roth IRA is set up by the individual.

Unlike tax-deferred retirement accounts, Roth IRA contributions are not tax deductible. The trade-off is that you will not need to pay income taxes on qualified withdrawals. Again, these contribution limits are combined totals for both your traditional and Roth IRAs.

Contribution limit: $6,000

Catch-up contribution limit: $1,000 (for a total of $7,000)

There are income limitations for who is able to use a Roth IRA. These limits exist on a phase-out schedule and ability to use a plan slowly tapers off until the final income cap.

Single-filer income limit: $122,000 phasing out until $137,000

Married, filing jointly income limit: $193,000 phasing out until $203,000

SEP IRA Contribution Limits

A simplified employee pension simplified employee pension (SEP) IRA is a tax-deferred retirement account for employers and self-employed individuals.

Contribution limit: For 2019, contributions an employer can make to employee’s SEP IRA can’t exceed the lesser of 25% of the employee’s compensation or $56,000.

Catch-up contributions are not permitted in SEP plans.

SIMPLE IRA

A savings incentive match plan for employees (SIMPLE) IRA is a retirement savings plan for small businesses with 100 or fewer employees.

Employee contribution limit: $13,000

Catch-up contribution limit: $3,000 for savers age 50 and older

Employer contribution limit: The employer is generally required to make a 100% match for each employee’s contributions up to 3% of the employee’s compensation. In certain circumstances, an employer may choose to make a matching contribution of less than 3%.

Maxing Out Your Retirement Contributions

Now that you know how much you can contribute to an account, you may be wondering how one actually goes about contributing the full amount.

For some people, it may help to understand the monthly dollar figure necessary to max out your annual retirement plan contributions. If you have a 401(k), you would need to contribute $1,583.33 each month to reach the $19,000 limit. With IRAs, that number is $500 per month to reach the annual $6,000 contribution limit.

A bit of good news: When you are making pre-tax contributions to a tax-deferred account such as a 401(k), the money is entering into the account before income tax deductions. Therefore, the difference in your post-tax paycheck might not be as drastic as you think.

There are several tactics you can take when working to increase how much you’re contributing to your retirement plan.

But whether you increase your contribution each month, quarter, or year, you may want to consider automating the saving process. Automation removes human emotion from the equation, which may help you save.

You may want to try to avoid massive lifestyle creep or inflation as your income increases over the years. It’s a balance to take care of both your current self and your future self. When you get raises or bonuses, consider allocating those funds to your retirement instead of a material purchase.

The most successful savers will likely have a strategy that focuses on earning more and cutting costs.

Opening Your Own Retirement Account

If you have a retirement account through work, this may be the easiest option, as contributions are taken directly from your paycheck and you can take advantage of a company match program if it’s offered.

Ease of use shouldn’t be discounted; the most important characteristic of a retirement plan is that you actually use it.

For those without a workplace retirement plan, getting set up with an account may take slightly more initiative. Luckily, opening an account doesn’t have to be hard. An account like a traditional IRA, Roth IRA, SEP IRA, or Solo 401(k) can be set up at a brokerage firm of your choosing.

Another way to save for retirement is through a general investment account, like SoFi Invest. With SoFi Invest, you can either make trades on your own through active investing or you can use an automated investing service which invests your money on your behalf using your goals as a guide.

No matter which path you take, you can be assured that there are no hidden fees and no transaction costs for buying and selling stocks and exchange-traded funds.

And all SoFi Invest® members have access to financial advisors who can help answer your questions. However, for tax-specific questions, such as whether you can use multiple retirement accounts at once, you may want to consult a certified tax professional.

Get started with SoFi Invest.


External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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