Is There a 401(k) Income Limit?

Quick Answer

Your 401(k) contributions aren’t limited by your income, but your employer’s matching dollars might be if you make more than $305,000 per year.

A man wearing a blue suit is using earphones while typing on his laptop at the office.

Is it possible to earn too much money to contribute to a 401(k)? Strictly speaking, it's not. If your employer offers one, you can contribute to a 401(k) regardless of your salary. But if you earn more than the IRS compensation limit for 401(k) plans, some of your salary might not be eligible for an employer match.

How the 401(k) Compensation Limit Works

In 2022, you can contribute up to $20,500 to your employer's 401(k) plan no matter how much you earn. However, the IRS limits the amount of income on which you can receive an employer match to $305,000.

Here's how it works: Suppose your annual salary is $500,000. Your employer's policy is to match 100% of your contributions up to 5% of your total compensation. In this scenario, you can contribute the IRS limit of $20,500, and your contribution limit is not affected by income. You can also take advantage of your employer's 100% match, but not on 5% of your entire $500,000 in income. Because the IRS limits the amount of income your employer can match, you can only receive matching contributions on 5% of $305,000, or $15,250.

The IRS 401(k) income limit applies only to employer contributions—not employee contributions. The employee contribution limit set by the IRS does not take income into consideration: It's a set $20,500, regardless of how much you make.

401(k) Contribution Limits for 2022

The IRS adjusts contribution limits yearly based on the cost of living. For 2022, the IRS' 401(k) contribution limits are as follows:

  • Employees may contribute up to $20,500 with an additional $6,500 catch-up contribution for employees 50 and older.
  • Total employer and employee contributions cannot exceed $61,000 or 100% of the employee's compensation (plus the $6,500 catch-up contribution if applicable).

How to Maximize 401(k) Benefits

Although the IRS limits the amount your employer can contribute to your 401(k), taking advantage of tax-deferred retirement savings through your employer is often a great investment, especially if your employer offers matching funds. Here are a few tips to consider if you're thinking of contributing to a 401(k):

Max Out Your Match

If you can swing it, try to contribute enough to get the maximum matching contribution your employer will make. Matching contributions are an immediate return on your investment: It's hard to match that anywhere else.

Realize Tax Benefits

Traditional 401(k) plans are tax-deferred, meaning that the money you put into your plan now is "pretax" or untaxed until you withdraw it when you retire. You can deduct your contributions on your tax return. Your money also grows tax-deferred until you withdraw it when you retire.

Consider a Roth 401(k)

Unlike a traditional 401(k), a Roth 401(k) is funded with after-tax dollars. You won't be able to deduct your contributions on your taxes, but your money will grow tax-free and you won't pay taxes on qualified distributions when you take the money out in retirement. However, not every retirement plan includes a Roth 401(k) option.

Know Your Vesting Period

Employer-based retirement plans often have a vesting period, which is the time an employee must work for an employer to own employer contributions. If you leave your job before you're fully vested, you may have to leave some of your money (typically all or some of your employer matching dollars) on the table. Before you submit your resignation, find out whether you are fully vested and what the implications are if you're not.

401(k) Income Limits Don't Have to Limit You

401(k) income limits are meant to apply to highly compensated employees. If you don't make more than $305,000 a year, you don't have to stress about how these limits will slow down your retirement savings. Contributing to a 401(k) can be a great way for you—and your employer—to save money on your taxes now and save toward your retirement down the line.

The purpose of this question submission tool is to provide general education on credit reporting. The Ask Experian team cannot respond to each question individually. However, if your question is of interest to a wide audience of consumers, the Experian team may include it in a future post and may also share responses in its social media outreach. If you have a question, others likely have the same question, too. By sharing your questions and our answers, we can help others as well.

Personal credit report disputes cannot be submitted through Ask Experian. To dispute information in your personal credit report, simply follow the instructions provided with it. Your personal credit report includes appropriate contact information including a website address, toll-free telephone number and mailing address.

To submit a dispute online visit Experian's Dispute Center. If you have a current copy of your personal credit report, simply enter the report number where indicated, and follow the instructions provided. If you do not have a current personal report, Experian will provide a free copy when you submit the information requested. Additionally, you may obtain a free copy of your report once a week through December 31, 2022 at AnnualCreditReport.