2022 401(k) Contribution Limits
Workers who are younger than age 50 can contribute a maximum of $20,500 to a 401(k) in 2022. That’s up $1,000 from the limit of $19,500 in 2021. If you’re age 50 and older, you can add an extra $6,500 per year in “catch-up” contributions, bringing your total 401(k) contributions for 2022 to $27,000. Contributions to a 401(k) are generally due by the end of the calendar year.
A traditional 401(k) is an employer-based retirement savings account that you fund through payroll deductions before taxes have been taken out. Those contributions lower your taxable income and help cut your tax bill. For example, if your monthly income is $5,000 and you contribute $1,000 of that to your 401(k), only $4,000 of your paycheck will be subject to tax. While the money is in your account, it is sheltered from taxes as it grows.
The money can usually be invested in a variety of stock funds and bond funds. Equity funds and target-date funds are both common options in 401(k) plans. (See the best funds in 401(k)s for more on where to invest your retirement savings.)
Many employers also match their employees’ contributions up to a certain percentage of salary. Some companies even contribute to workers’ accounts regardless of whether the employees contribute their own money. On average, companies contributed 5.3% of an employee’s pay to the employee’s 401(k) account in 2019, according to data from the Plan Sponsor Council of America .
How Much Should You Save for Retirement in a 401(k)?
Experts recommend that workers save at least 15% of their income for retirement , including any employer match. For instance, if your employer contributes 3% then you would need to save an additional 12%.