Sean Casterline

Everything You Need to Know About 401k Contribution Limits

 Sean Donovan Casterline

Sean Donovan Casterline

2022 401k Contribution Limits

If you were not already aware, 401(k) retirement plans could provide tremendous advantages if they are offered to you. A great perk in many jobs is an employer-matching percentage up to a certain amount. If this option is available to you, you are potentially losing out on money by not taking full advantage of it.

A few changes to 401(k) contribution limits have occurred in 2022. In this post, we will dive into the important changes you need to know and understand for your own 401(k) contribution limits.

Maximum Contributions to 401(k) for 2022

Explaining Employer 401(k) Matches

Your employer can match your 401(k) contributions in several ways. The term “match” is often used as a catch-all for any type of employer contribution. The exact details will depend on the terms outlined in your employment.

A few examples of what this might look like include the following:

  • 3% to 6% of Your Annual Salary: You may be offered a matching rate based on your salary — usually ranging between 3% and 6%. If you make $75,000 with a 4% contribution equaling $3,000, your employer will match that $3,000 annually.

  • Percentage of Your Contributions: Some employers will contribute a percentage of your actual contribution, such as 50% of what you contribute each year. So, if you contribute $4,000 to your 401(k) in a year, your employer will provide an additional $2,000 contribution.

Employer Match and 401(k) Limits

When you enjoy an employer-match benefit at a job, the total amount of contributions can get confusing. If an employer matches a certain contribution amount, does that also count toward your maximum contribution?

Simply stated, the answer to this question is “no.” Employer contributions do not reduce your maximum annual contribution of $20,500 (or $27,000 if over 50).

However, the IRS does limit the total amount of 401(k) contributions from both the individual and the employer at $61,000 annually.

Maxing Out 401(k) Plans and Other Retirement Accounts

If you have a Roth IRA or additional account beyond your 401(k), not to worry. You can have and contribute to both accounts.

Depending on the details of your 401(k) and employee matching, diversifying into an IRA could make sense for you. Of course, you will want to discuss your options with your financial advisor to determine what’s best for your particular situation and goals.

Find Retirement Planning Support with Delta Capital Management

Navigating the details of retirement accounts can often become overwhelming if you are inexperienced. This is why a wealth management firm such as Delta Capital Management could be extremely beneficial for you.

Their team of advisors can help you match your retirement objectives with your current situation. That way, you can understand the best course of action when it comes to annual contributions.

To learn more about what Delta Capital Management does, get in touch with our team today.