Your 401(k) contribution limit starts over on January 1, and any room you don’t use by your last December paycheck is gone for good. Each January, look up the new IRS limit, divide it by your number of paychecks, and set your contribution to that amount if your budget allows.
Doing this every January matters because the limit moves. The IRS adjusts it for inflation, and when it rises, a per-paycheck amount that maxed you out last year leaves room unused.
The limit counts contributions by calendar year, and every dollar has to come out of that year’s paychecks. It’s also a limit per person, not per job. If you switched employers this year, what went into the old plan counts too, and keeping the combined total under the limit is on you.
To hit the max from any point in the year, take the current limit, subtract what you’ve already contributed, and divide by the paychecks you have left. Enter that as a dollar amount, or convert it to a percentage of your pay. If you’ll be 50 or older by December 31 and your plan offers catch-up contributions, you can add one on top, with a larger allowance in the years you turn 60 through 63. In a plan with a Roth option, the IRS requires the catch-up to go in as Roth, taxed now instead of at withdrawal, if your wages from that employer topped the high-earner threshold the year before.
Spread your contributions across the whole year if your employer matches each paycheck. Hit the limit by summer and the later paychecks can go unmatched, unless your plan makes up the difference with a year-end true-up. Ask HR which kind you have.
If you changed jobs, add up both plans before you set the new rate. Any excess has to come out by April 15 of the following year, or it’s taxed twice, once for the year you contributed it and again when you withdraw it.
If the full limit is out of reach, contribute at least enough to collect your whole employer match, then put part of every pay raise toward a higher rate. Your take-home pay still grows, and the gap to the max shrinks as long as your contributions rise faster than the limit does.
Editorial & Advertiser Disclosure: The editorial content on this page is not provided, commissioned, reviewed, approved, or otherwise endorsed by any advertiser. Opinions expressed here are ours alone, not those of any advertiser. The offers that appear on this site are from companies that compensate us. That compensation may influence which products we cover and where and how they appear on a page – including the order in which they appear – but it does not influence our evaluations, ratings, or opinions. We do not include every company or offer available in the marketplace.
Related:
