Hi Friendos,
Last week I wrote about the maximum amount you can contribute to an HSA and an IRA each year. I said:
“HSA and IRA contribution limits are separate from each other and from job-based account limits. In general, the max you can contribute across types of accounts is:
HSA max + IRA max + job-based max”
This week we’ll focus on that “job-based max” part of the formula to give a framework for understanding the max in scenarios like: only one job all year, more than one job at a time, switching jobs, being self-employed and having a W-2 job. Some of these job-based retirement accounts are part of employer-sponsored plans: 401k, 403b, 457b, SIMPLE plans. Others are established by a self-employed person: solo 401k, SEP IRA.
It is helpful to understand that there are different types of contributions to these accounts and distinct maximums that apply to them.
- Employee “elective deferral” contributions: these are what nearly everyone means when they talk about putting money into a 401k or 403b. It is money you choose to have withheld from your paycheck that goes into the retirement account.
- Employee “catch up” contributions: extra contributions you can make each year if you are over age 50.
- Employer contributions: these could be matching contributions or they could be “nonelective” where the employer puts $ into the plan on your behalf, whether you make contributions or not.
Here’s the breakdown of these for different types of retirement saving (investing) accounts:
401k, 403b: In 2024, elective deferrals are capped at $23k. If you are over age 50, you can also make up to $7.5k in catch-up contributions.
SIMPLE plans (SIMPLE 401k, SIMPLE IRA): elective deferrals are capped at $16k, catch up contributions at $7.5k.
If you have multiple jobs during the same year (either at the same time or at different times) the $23k cap on deferral contributions, and $7.5k cap on catch up contributions, is across all 401k’s, 403b’s, and SIMPLE plans in which you participate. This limit is separate from 457s, IRAs, and HSAs.
- Example #1: You are under age 50 and had a job at a nonprofit from January to June. You put $10k into that job’s 403b while you were working there. You started a new job in August and are eligible for the 401k right away. You can put up to $13k into the new job’s 401k from August to December (=$23k – 10k).
- Example #2: You are 55 years old and have two jobs all year long. Each of them offers a 401k. You can split up contributions however you like across the two 401k’s, could be 100% into one, 100% into the other, 50/50, 60/40, or any other split, but the total amount you contribute across the two is capped at $23k + 7.5k.
Most 457 plans: Elective deferrals are capped at $23k. If you are over age 50, you can also make up to $7.5k in catch-up contributions. Rules for 457 plans can vary a bit, so it’s always a good idea to talk to HR about the specifics for your plan (e.g., for catch up contributions). These $23k and $7.5 limits are separate from those for 401k/403b/SIMPLE plans.
- Example: You are 38 years old and have a job that offers a 401k and a 457. You can put up to $23k into the 401k and also put up to $23k into the 457, for a total of $46k across the two plans. The 457 limit is separate.
Solo 401k: Same $23k cap on employee deferral contributions, same $7.5k cap on catch up contributions. For employer contributions, you can contribute 25% of compensation or 20% of net earnings (see Mike Piper’s great calculator here), subject to the total contribution limit of $69k for the sum of employee + employer contributions.
SEP IRA: Employer contributions cannot exceed 25% of compensation or 20% of net earnings, capped at $69k for 2024.
- Example: You are under age 50 and have self-employment and W-2 income during the same year, either because you switched jobs/work during the year, or held multiple jobs at the same time. You have a solo 401k that you opened to set aside some of your self-employment income, and also have a 403b available at the W-2 job. You can only make $23k in employee contributions across the solo 401k and 403b. Assuming you did that, you can also make additional employer contributions to the solo 401k of up to $46k if your income is high enough.
Putting this all together, if we recall the formula above: HSA max + IRA max + job-based max
Job-based max is the total across (i) 401k/403b/SIMPLE max employee contributions (ii) max 457 employee contributions, and (iii) self-employment employer contributions.
Clear as mud, right? This is why we need reform for tax code simplification. It really shouldn’t be this hard. If you have questions about your specific situation, don’t hesitate to send me an email (gratis) and I’ll try to help you out. If what you really need is more of a conversation, we could always book a session together.
-Stephanie
Frequently Taxed Questions 