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Maximize Your 401(k) Savings

| October 24, 2023

An employer-sponsored 401(K) retirement plan is a powerful retirement savings vehicle and an important part of a retirement savings strategy. Contributions can reduce taxable income for the year while providing tax-deferred investment growth. 401(k)s that offer employer contributions create an additional savings opportunity paid for by your employer. 

According to a 2022 report from the Investment Company Institute’s 401(k) Resource Center, an estimated 60 million Americans have at least one 401(k) plan that they're actively using to save for retirement. Despite the increased popularity of 401(k) plans, more can be done to help working Americans take the fullest possible advantage of the opportunity to save for retirement through these plans.

401(k) Contribution Limits


Pretax and Roth employee contributions

(Catch-up contributions not included)

Total Net Additions (Employee & Employer total limits combined)

Catch-up contributions

(Available to employees the full year they turn age 50 and those older. In addition to the employee limit)

401(k) contribution limit for 2023





The amount an employee can contribute under a traditional, safe harbor, or automatic enrollment 401(k) is limited to $22,500, for 2023. A catch-up contribution is available to employees, starting the 1/1 of the calendar year they turn age 50 and those older. For contribution funding strategies, it is important to know that you are eligible for the catch-up contribution as of January 1st the year you will turn age 50. The additional “catch-up” contribution is indexed for inflation and is $7,500 in 2023. Note that the catch-up provision available in a 401(k) is separate from the catch-up provision available in an IRA and HSA. 

Total employer and employee contributions, “total net additions”, are subject to a combined annual limitation. The total net additions limit is limited to the lesser of 100 percent of the employee's compensation or $66,000 for 2023. Your employer contributions are not counted towards your employee contribution limit as they are with an HSA account. However, the IRS does limit the total contribution amount from employer and employee contributions combined.

It is important to note the employee contribution limit is not impacted by employer contributions. If your employer contributes nothing, you still cannot exceed the employee contribution of $22,500.  These limits do not affect what you can put into an individual retirement account (IRA) each year.

What if you have access to multiple 401(k)s

The individual contribution limit cannot be exceeded regardless of how many 401(k)s or other employer retirement plans you’re eligible to participate in. However, each of your employers may still be able to contribute up to the maximum allowed per plan. Keep in mind the actual amount you (or your employer) can contribute will still be subject to your earnings, plan limitations, and other factors.

These rules change if the businesses are related. Controlled group classifications may treat multiple businesses with related ownership as one employer for retirement plan purposes. These rules were developed to prohibit business owners from forming a new company to exclude employees from the retirement plan.

401(k) Rules for Highly Compensated Employees (HCEs)

There are additional contribution rules for highly compensated employees. The distinction between highly compensated employees and other employees is important because 401(k) plans are subject to nondiscrimination tests. These tests are designed by the IRS to make sure that an employer isn't favoring higher earners over other workers.

The additional contribution rules for Highly Compensated Employees are needed in order for a plan to pass nondiscrimination testing. The average contributions by HCEs cannot exceed 2% of the contributions made by non-highly compensated employees. The IRS also puts a separate cap on total contributions made by highly compensated employees. Under this rule, the total contributions for all HCEs can't exceed the combined contributions of all non-highly compensated employees by 2%.

A highly compensated employee is defined as an individual who:

  • Owned more than 5% of the interest in the business at any time during the year or the preceding year regardless of how much compensation that person earned or received,
    • Interest is based on the share value for the employee and his or her spouse, children, and/or grandchildren; collectively, the value of the shares would need to add up to at least five percent.
  • Or, for the preceding year, received compensation from the business of more than
    • $135,000 if 2022 was the preceding year.
    • $150,000 if 2023 was the preceding year.
  • And, if the employer selects this, was in the top 20% of employees when ranked by compensation.

These rules essentially dictate how much a higher earner can contribute to their plan each year. This can make it a little tricky when determining how much you can contribute and if you are considered a highly compensated employee. Since the non-discrimination test isn’t run until the following year, a high-income earner may not know that he or she contributed too much until after the year is over. If that happens, the company will likely refund excess contributions, which would then be taxed as ordinary income.

Maximum Includable Compensation for 401(k) Contributions

Section 401(a)(17) of the IRC imposes a limit on the amount of annual compensation that can be used to calculate a participant's retirement benefit. The limit for 2023 earnings is $330,000. This means that any amount over $330,000 will not apply for eligible contributions.

It is important to note that an uncommon practice in the way few plans allow employees over this amount to fund contributions. In rare cases, a plan may require salary deferrals to cease once a participant’s compensation reaches the annual compensation limit. This is rare, but if it is in the language of your plan documents, it greatly impacts how you decide to fund your 401(k) contributions. A situation could occur where once an employee has earned over the limit their plan no longer allows contributions, even if the maximum employee contribution limit has not been reached. 

The impact of making contributions

Making contributions to your 401(k) account can have a major impact on retirement savings strategies for all plan participants. High-income earners can still enjoy the benefits of 401(k) savings, even with contribution limitations. Those below the high-income earner threshold can also enjoy the savings benefit of 401(k)s.

Using an Example through Financial Planning 

Let’s look at an example client in eMoney, our financial planning software. Frank and Joanna both work and have three kids. They are 47 and 46 and want to retire at age 65 with enough money to last until they are 100. Frank is a high-income earner, earning $350,000 annually. Joanna works part-time at the local hospital earning $50,000 annually. Frank has access to a 401(k) and his contributions are limited due to his income. Joanna has access to a 403(b) through the hospital.

At their current contribution rates, below the allowable maximum they can each make, they are projected to spend their current income in retirement until age 91 (illustrated below in blue). By making the allowable maximum contributions from now until retirement, Frank and Joanna are able to fund an additional 7 years in retirement and gain a projected $1,917,636 in retirement.

The image above is provided with the sole, educational, intention of showing you, the reader, the functionalities of eMoney’s Decision Center™. We think it's important to evaluate the projected outcome of a choice prior to implementing the decision. The case study above simply provides a reflection of the software we use to make the projections. In no way does it reflect your unique situation and you should consult with the relevant professionals prior to making any decisions. Additional information from our compliance team, regarding the educational example above, can be found in the Disclosures and Disclaimers section of this article.

Working with a Financial Planner

Working with a financial planner can help you reach your retirement goals by providing an understanding of the resources available to you. A CFP® professional is a credentialed financial professional held to strict ethical and performance standards. Not all financial planners have completed the requirements needed to obtain the CFP® certification. As part of their certification, CFP® professionals commit to the CFP Board's Code of Ethics and Standards of Conduct, which means they commit to work in their clients' best interests at all times when providing financial advice.

RMR has a team of seven CERTIFIED FINANCIAL PLANNER™ professionals, responsible for creating, delivering, and implementing comprehensive financial plans. Our financial planning process follows a seven-step process, outlined by the CFP Board, and divided into three primary categories; Organize, Educate, and Guide. 

At RMR, we provide strategic options that help you reach your goals. By utilizing the Decision Center in eMoney we can illustrate the projected impact of each option. We educate you on each option, empowering you to make informed decisions on your financial future.

Disclosures and Disclaimers

RMR Wealth Builders, Inc. believes that education is a key step toward addressing your financial goals, and this material is designed to serve simply as an informational and educational resource. Accordingly, this material does not offer or constitute investment advice and makes no direct or indirect recommendation of any particular product or of the appropriateness of any particular investment-related option. Your needs, goals, and circumstances are unique, and they require the individualized attention of your financial professional. The example is a screenshot of the Decision Center™ feature generated by eMoney, a web-based analysis system owned and operated by eMoney Advisors, LLC. RMR Wealth Builders, Inc. is a licensed subscriber of eMoney Advisors, LLC technology products and services. RMR Wealth Builders, Inc. is not affiliated with or under common ownership, control or operation with eMoney Advisors, LLC.

Projections are based on assumptions input into the system and are not guaranteed. Projections for individual clients are based on assumptions provided by clients to the advisor/planner. The assumptions collected and uploaded are done in accordance with the RMR Privacy Policy. Actual results are based on individual situations at the time of engagement and will vary, perhaps to a significant degree. The projection reports are hypothetical in nature and for illustrative purposes only. Return assumptions do not reflect the deduction of any commissions. They may reflect fees or product charges when identified by the advisor/representative. Deduction of such charges would result in a lower rate of return. Consult your legal and/or tax advisor before implementing any tax or legal strategies.  All projection outputs must be reviewed in conjunction with the limitations and conditions disclosed in the financial plan, the client engagement letter, and the disclaimers provided at