The 401(k) plan is the most popular type of employer-sponsored defined-contribution retirement plan. According to the Survey of Income and Program Participation (SIPP), 60 million individuals or 33.0% of the U.S workforce participated in 401(k) plans in 2008.
By saving in the 401(k) plan, you get an immediate tax break, because contributions come out of your paycheck before taxes are withheld. You also get tax-deferred growth – meaning you don’t pay taxes each year on capital gains, dividends, and other distributions.
Each year the IRS can annually adjust contribution limits. For 2017, the pre-tax contribution limit to the 401(k) plan remains at $18,000 while the overall 401(k) contribution limit increases slightly. Here are the details of 401(k) contribution limits.
401(k) Contribution Limits
|Tax Year 2017||Tax Year 2016|
|Elective Deferral Limit||$18,000||$18,000|
|Overall Contribution Limit||$54,000||$53,000|
For the 2017 tax year, you can choose to contribute up to $18,000 into the pre-tax 401(k) account, with an additional $6,000 catch-up contribution allowed if you are 50 and older.
The overall 401(k) contribution limit is $54,000. This overall limit includes employees’ pre-tax, after-tax or Roth contributions to the 401(k) Plan. For participants 50 or older with an additional $6,000 catch-up allowance, the overall limit is $60,000.