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The contribution limit for a designated Roth 401(k) increased $2,000 to $22,500 for 2023. Accountholders aged 50 or older may make additional catch-up contributions of up to $7,500, up from $7,000 in 2022. This means the total contribution can reach as much as $30,000.
Employers can contribute to a Roth 401(k) by matching employee contributions to a certain percentage or dollar amount. They can also make elective contributions that don’t depend on employee contributions.
The Internal Revenue Service (IRS) adjusts contribution limits yearly based on inflation. For 2023, the limit on employee and employer contributions is $66,000 or 100% of employee compensation, whichever is lower (up from $61,000 for 2022). Workers aged 50 and over can add a $7,500 catch-up contribution for a total of $67,500 (up from $6,500 in 2022).
Key Takeaways
- Retirement contribution limits are adjusted each year for inflation.
- The limits for IRAs and 401(k)s are different.
- Employers can contribute to employee Roth 401(k)s through a match or elective contributions.
- You may be able to contribute to a Roth IRA, which has contribution limits and rules that differ from those of a Roth 401(k).
- No taxes are due on your withdrawals from a Roth 401(k) in retirement, but after age 72, you must take required minimum distributions.
Roth 401(k) vs. Traditional 401(k)
Although the contribution limits are the same for traditional 401(k) plans and their Roth counterparts, a designated Roth 401(k) account is technically a separate account within your traditional 401(k) that allows for the contribution of after-tax dollars. The elected amount is deducted from your paycheck after income, Social Security, and other applicable taxes are assessed. The contribution doesn’t garner you a tax break in the year you make it.
The big advantage of a Roth 401(k) is that no income tax is due on these funds or their earnings when they’re withdrawn after you retire. A traditional 401(k) works in the opposite way. That is, savers make their contributions on a pretax basis and pay income tax on the amounts withdrawn when they retire. Neither of these 401(k) accounts imposes income limitations for participation.
When available, savers may use a combination of the Roth 401(k) and the traditional 401(k) to plan for retirement. Splitting your retirement contributions between both kinds of 401(k)s, if you have the option, can help ease your retirement tax burden.
If You Have Multiple Roth Accounts
The question for those who want to have a Roth 401(k) and a Roth IRA is: Do you meet the income limits for being permitted to contribute to an IRA? For 2023, the income phaseout range for IRA contributions is:
- $138,000 to $153,000 (up from $129,000 and $144,000 for 2022) for single filers.
- $218,000 to $228,000 (up from $204,000 and $214,000 in 2022) for those married filing jointly (and qualifying widows and widowers)
The 401(k) contribution deadline is at the end of the calendar year, whereas the deadline for IRAs is April 15 or thereabouts. In other words, for the 2022 tax year, you can contribute to your Roth IRA until April 18, 2023.
If you have both a Roth 401(k) plan and a Roth IRA, your total annual contribution for all accounts in 2022 has a combined limit of:
- $20,500 Roth 401(k) contribution + $6,000 Roth IRA contribution = $26,500
- $20,500 Roth 401(k) contribution + $6,500 catch-up contribution + $6,500 Roth IRA contribution + $1,000 catch-up contribution = $34,500 if you are 50 or older
For 2023, your total annual contributions cannot exceed the following:
- $22,500 Roth 401(k) contribution + $7,500 Roth IRA contribution = $30,000
- $22,500 Roth 401(k) contribution + $7,500 catch-up contribution + $7,500 Roth IRA contribution + $1,000 catch-up contribution = $38,500 if you are 50 or older
For 2022, Roth IRA accounts have a separate annual contribution limit of $6,000, with an additional $1,000 limit for catch-up contributions if you are 50 or over (for a total of $7,000). For 2023, the limits are $6,500 and $1,000 if you are 50 or older (for a total of $7,500).
Additional Roth 401(k) Rules
Roth 401(k) contributions must be made by the end of the calendar year, meaning the 2022 contribution deadline is Dec. 31, 2022. However, you have a bit more time with Roth IRA contributions—you must make them by tax day.
Five years must pass from your first contribution before you can withdraw from your Roth 401(k) tax-free, and you must also be at least 59½ years old. At age 72, you must take minimum distributions from your Roth 401(k) but not from a Roth IRA.
Can I Contribute to Both a 401(k) and a Roth 401(k)?
That depends on your employer. Some employers offer an option to split contributions between a traditional and a Roth 401(k)—others don’t.
How Much Can I Contribute to My Roth 401(k) in 2023?
The maximum amount you can contribute to a 401(k), traditional or Roth, in 2022 is $20,500, or $27,000 if you are 50 or older and eligible to make catch-up payments. In 2023, you can contribute $22,500 or $30,000 if you’re 50 or older.
What Happens If I Exceed the Roth 401(k) Limit?
If your 401(k) contributions exceed the annual limit, you risk being taxed twice on your excess contributions. Therefore, contacting your HR, payroll department, or plan administrator is advisable as soon as you notice an overcontribution. If you inform them before the tax-filing deadline, you may be able to fix the issue in time.
When Is the Roth 401(k) Contribution Limit Reset?
Roth 401(k) contribution limits apply to the calendar year from Jan. 1 to Dec. 31. At the beginning of a new year, contributions are reset to zero, and the limit may be raised to account for inflation.
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