A Match made in Heaven: Navigating your 401(k) and Employer Matching

Let’s break down the key points this cheery guide will cover:

– Employer matchings aren’t counted towards your 401(k) elective contribution limit.
– In 2024, you may contribute up to $23,000 to your 401(k), unimpeded by your employer’s contributions.
– Your combined contributions, contributed by both you and your employer, have an upper limit.
– You should understand different types of 401(k) contribution limits.
– Correcting over-contributions is critical to avoid penalties.
– The IRS keeps a check on the salary amount that can be used to calculate employer match.

And here’s my “hot take”: The 401(k) is more than a mere playbook of retirement numbers. It’s a fiscal symphony, blending your hard-earned dollars with your employer’s matching contributions to create a harmonious retirement nest. As we peel back the curtains on the intricacies of 401(k)s, let this guide remind you that each provision, each rule, is but a note in your symphony of financial independence.

Your 401(k) contribution limit and employer match: A Separate Tally

Imagine if every time your employer stashed some extra cash into your 401(k), your personal contribution cap shrank – pretty counterproductive, wouldn’t you agree? Luckily, your employers’ magnanimous contributions do not encroach upon your personal contribution limits. Put it this way – you have $23,000 worth of tickets to your financial freedom train ride in 2024, and no thrilled-to-help employer can steal them away.

However, (because isn’t there always a however?), the IRS does specify a cap on the combined total of your and your employer’s contributions. So let’s dive into what those limits look like.

Knowing your 401(k) Contribution Limits

Understanding 401(k) contribution limits might not look like the most exciting way to spend an afternoon, but knowing their nitty-gritty is like mastering the rules of a money-saving board game. So here’s how the IRS lays out the game:

Earmarking Funds: Elective Deferrals for 401(k) Accounts

An elective deferral refers to the portion of your paycheck you decide to set aside into your 401(k) account. In the game of savings, the IRS plays referee by capping the amount you can stash away at $23,000 for 2024. But lookout – no employer matching dollars included in that limit!

Over 50? Play the Catch-Up

As retirement inches closer, worry lines can deepen. And the IRS throws in a lifeline for those 50 or older, in the form of catch-up contributions. Tag an additional $7,500 onto your elective deferrals and that’s a neat bundle towards your twilight years!

The Grand Total: Combined Employee and Employer Contributions

Here’s where the matching dollars join the game. The IRS caps total contributions at $69,000 in 2024 – a combined total of elective deferrals, employer matching, and other contributions. It’s a splendid chorus of savings, but don’t forget, the cap can’t exceed 100% of your annual salary.

Life’s a Ladder: Limits for the Highly Paid

If your annual salary goes through the roof, then the IRS reins in the maximum compensation your employer can use to calculate their matching contribution. Under this rule, you can’t count more than $345,000 of your salary to calculate the employer match.

Overdone it? Here’s the Backup Plan

If you’ve been too generous with your 401(k) contributions, you’ve got a situation, but it’s not daredevil. You’d need to withdraw the excess funds and the earnings they’ve attracted faster than a bee to honey. Fix the error before April 15 of the next year and you’ll avoid early withdrawal penalties. Else, you might just be caught in a flurry of additional taxation, penalties, and even potential disqualification of your plan.

Your Cheat-Sheet: 401(k) Contribution Limits for 2024

The Numbers at a Glance:

– Elective deferrals – $23,000
– Catch-up contribution (if you’re 50 or older) – $7,500
– Combined employee and employer contributions – $69,000
– Compensation limit for calculating employer match – $345,000

The Final Note

As 2024 rolls in, you have some big figures to play with. Contribute up to $23,000 of your earnings to your 401(k) or $30,500 if you’re aged 50 or above. And if your employer’s sharing a piece of the pie too, remember that the combined contributions need to stay within $69,000. Just remember, while these figures are reviewed annually to keep up with the cost of living, the goal remains the same year on year – to steadily compile a comfortable retirement nest.

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Original Article:https://www.experian.com/blogs/ask-experian/does-employer-match-count-toward-401k-limit/