If your long-term goals include enjoying a comfortable retirement, the 401(k) plan is a great way to get there. Whether you choose a traditional or a Roth 401(k), however, the annual contribution limits are the same.
With a 401(k) plan, employees have the opportunity to make substantial annual contributions to their retirement savings and get a nice break on taxes, as well. It’s just a matter of initially setting up a payroll deduction to contribute to your 401(k) and choosing investments, and then updating your preferences maybe once a year.
Thanks to high contribution limits set by the IRS — thousands more than you can stash in an IRA — and the potential to earn an employer match, the 401(k) is one of the best retirement plans available to workers.
2025 401(k) contribution limits
For 2025, the 401(k) limit for employee salary deferrals is $23,500. (Employer matches don’t count toward this limit.)
However, the total contribution limit — which includes employer contributions (and after-tax contributions you make, if your employer offers that feature) — is $70,000.
On top of these amounts, workers aged 50 and older can add up to $7,500 more annually as a catch-up contribution in 2025. And a new provision that started in 2025 allows workers aged 60, 61, 62 or 63 to make up to $11,250 in catch-up contributions.
The 401(k) contribution limits also apply to other so-called “defined contribution plans,” including:
| 401(k) plan limits | 2025 |
|---|---|
| Maximum salary deferral for workers | $23,500 |
| Catch-up contributions for workers age 50 and older | $7,500 |
| Catch-up contributions for workers aged 60, 61, 62 or 63 | $11,250 |
| Total contribution limit | $70,000 |
| Total contribution limit, plus 50+ catch-up contribution | $77,500 |
| Total contribution limit, plus 60–63 catch-up contribution | $81,250 |
| Compensation limit for figuring contributions | $350,000 |
| Compensation threshold for key employee nondiscrimination testing | $230,000 |
| Threshold for highly compensated employee nondiscrimination testing | $160,000 |
Take advantage of 401(k) match from employers
Employers often provide a matching contribution, so if you don’t take advantage of this, you’re rejecting free money. But you may not be immediately entitled to that money.
While your contributions are always vested in the plan, meaning they are immediately credited to your account, employers sometimes impose time restrictions on their contributions to provide an incentive for workers to stick around.
“A company match is a way that your company will save for retirement on your behalf, but only if you save the minimum amount to get the match,” says Katie Brewer, CFP, the founder of Your Richest Life, a financial planning firm focusing on Gen X and Gen Y. “It’s free money that requires that you put a certain amount into retirement to get the free money.”
Typically, a 401(k) plan may offer an employer match of 50 cents on the dollar, up to 6 percent of a worker’s salary, which would be the equivalent of 3 percent of compensation. To take advantage of the full match, employees would have to defer 6 percent of their salary toward the 401(k) plan. Some plans are more generous, offering a 6 percent total match or more. Be sure to take advantage of the employer’s match because that’s free money to you — and a guaranteed return on your investment.
Employers have a higher contribution ceiling
The employer’s 401(k) maximum contribution limit is much more liberal. Altogether, the most that can be contributed to your 401(k) plan between both you and your employer is $70,000 in 2025. (Again, those aged 50 and older can also make an additional catch-up contribution of $7,500 in 2025 and the catch-up contribution limit for workers aged 60–63 is $11,250.) That means a particularly generous employer could potentially contribute much more than you do to your plan, though this is not the norm.
The salary cap for determining employer and employee contributions for all tax-qualified plans is $350,000 in 2025. Even at that level, the employer would have to contribute a hefty amount to reach the $70,000 limit.
Traditional vs. Roth 401(k)
Some employers offer both a traditional 401(k) and a Roth 401(k). With a traditional 401(k) plan, you can defer paying income tax on the amount you contribute. In other words, if you earn $80,000 a year and contribute the maximum $23,500, your taxable earnings (assuming no other deductions) for the 2025 tax year would be $56,500.
With a Roth 401(k) plan, you don’t get an upfront tax break, but when it’s time to withdraw that money in retirement, you won’t owe any tax on it. All your accumulated contributions and earnings come out tax-free.
Investing in both types of plans provides you with tax diversification, which can come in handy during retirement.
If you have access to both a Roth and a traditional 401(k) plan, you can contribute to both, as long as your total contribution to both as an employee doesn’t exceed $23,500 in 2025.
In addition to the Roth and traditional 401(k), some employers also offer an “after-tax plan,” allowing you to save up to the total annual limit of $70,000 in 2025. With this account you can put away money after-tax and it can grow tax-deferred in your 401(k) account until withdrawal, at which point any withdrawn earnings become taxable.
Can I contribute 100 percent of my salary to a 401(k)?
If your earnings are below $23,500, then the most you can contribute is the amount you earn. It should also be noted that a 401(k) plan document governs each particular plan and may limit the amount that you can contribute. This applies especially to highly compensated employees, which in 2025 is defined as those earning $160,000 or more or who own more than 5 percent of the business.
Sponsors of large company plans must abide by certain discrimination testing rules to make sure highly compensated employees don’t get a lopsided benefit compared to the rank and file. Generally, highly compensated employees cannot contribute higher than 2 percentage points of their pay more than employees who earn less, on average, even though they likely can afford to stash away more. The goal is to encourage everyone to participate in the plan rather than favor one group over another.
There is a way around this for companies that want to avoid discrimination testing rules. They can give everyone 3 percent of pay regardless of how much their employees contribute, or they can give everyone a 4 percent matching contribution.
How much should you contribute to a 401(k)?
At a minimum, employees should contribute enough to their 401(k) plan to earn any company match. Beyond that, Brewer suggests that your contributions should be based on a percentage of your income, depending on your age.
She recommends that you stash away between 10 percent and 15 percent of your gross income if you’re in your 20s and 30s, or if you started saving during those years. If you’re behind in retirement savings in your 40s and 50s, Brewer encourages you to set aside between 15 percent and 25 percent of your income.
“If you’re not saving anything for retirement right now and want to get started, start with at least 3 percent to get going,” Brewer says. “Increase your contribution by at least 2 percent each year — and do a larger increase in years where you get a big raise — until you hit your target savings percentage.”
Catch-up contributions: Perks for older investors
If you happen to be at least 50 years old, you’re entitled to make “catch-up” contributions by adding an additional $7,500 for a total contribution of $31,000 in 2025. The total maximum that can be tucked away in your 401(k) plan, including employer contributions and allocations of forfeiture, is $77,500 in 2025, or $7,500 more than the $70,000 maximum for everyone else. Forfeitures come from an account in which company contributions accumulate from departing employees who weren’t vested in the plan.
Starting in 2025, employees ages 60 to 63 can contribute a higher amount in catch-up contributions due to changes made as part of the SECURE 2.0 Act. The catch-up contribution amount for these employees is $11,250 in 2025.
How to claim your retirement savings
Unless you’re really in a bind, it’s best to avoid cracking open your 401(k) nest egg before age 59 ½, which is the age you’re allowed to dip into your savings without paying an early withdrawal penalty.
However, there are some exceptions to the rule. Some 401(k) plans include provisions that allow for penalty-free early access in the form of 401(k) loans or hardship withdrawals. A company may also allow access to those who retire and leave the year you turn 55 or after (known as the “Rule of 55“).
Not all plans include the option for loans, hardship withdrawals or penalty-free withdrawals for early retirees, and some plans require that a person be terminated before accessing their money, even if they are 59 ½ or older.
Brewer cautions against taking a distribution or a loan against your 401(k) early. There’s no replacing time in the market, she points out, and consistent saving over time is one of the best ways to build wealth for the future.
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