IRS Rules on 401(k) Contributions: Limits, Types, and Deadlines

2025 401(k) Contribution Limits

The IRS sets a single annual limit on how much you can defer from your paycheck into a 401(k). For 2025, the elective deferral limit is $23,500. That is the total of all traditional and Roth 401(k) deferrals from your own salary across every plan you participate in during the year. The limit is adjusted each year for inflation, and the IRS typically announces the next year's figures in late October or November.

If you are age 50 or older before the end of the calendar year, you can make a catch-up contribution of $7,500. That brings your combined deferral limit to $31,000 for 2025. The catch-up amount has remained $7,500 since 2020 and is not inflation-indexed, but the IRS can change it in future years.

Traditional vs. Roth 401(k) Deferrals

The IRS treats traditional and Roth 401(k) contributions differently, but they share the same overall limit. Traditional 401(k) deferrals reduce your taxable income for the year you make the contribution. Roth 401(k) deferrals are made with after-tax dollars, so they do not lower your current tax bill, but qualified withdrawals in retirement are tax-free.

You can split your contributions between traditional and Roth in any proportion, as long as the combined total does not exceed the annual deferral limit. Some employers allow in-plan Roth conversions, which move money from a traditional account to a Roth account inside the same plan. Those conversions are not subject to the annual contribution limit, but they do not reset the holding period for the five-year rule.

Employer Match and Profit-Sharing

Employer contributions do not count toward your personal deferral limit. The IRS requires that the combined contributions from both employee deferrals and employer contributions not exceed 100% of your compensation or $70,000 for 2025, whichever is less. Employer contributions include matching dollars, non-elective contributions, and profit-sharing allocations.

Many employers use a matching formula, such as 100% of the first 3% of your salary you defer and 50% of the next 2%. The match is discretionary unless the plan document states otherwise. Vesting schedules control when you permanently own those employer dollars, and the IRS requires plans to be fully vested within a reasonable time frame, typically no more than six years under a graded schedule or immediately under a cliff schedule.

Self-Employed and Solo 401(k) Rules

Self-employed individuals can use a solo 401(k), which has two contribution buckets. The employee deferral limit remains $23,500 in 2025, with the same $7,500 catch-up option for those 50 and older. The employer contribution is a separate calculation based on a percentage of net self-employment income, and the combined total still cannot exceed the $70,000 annual limit or your compensation, whichever is less.

The IRS treats a solo 401(k) as an employee plan, which means it can be easier to administer than a SEP-IRA but still requires the same annual filing of Form 5500 once assets exceed $250,000.

Excess Contributions and Penalties

If you contribute more than the IRS allows, the excess amount is subject to a 6% excise tax each year it remains in the account. You can avoid the tax by removing the excess by the tax filing deadline, including extensions, and withdrawing any net income attributable to it.

Common causes of excess contributions include changing jobs mid-year and having two employers both process deferrals, or making after-tax contributions beyond the plan's limits. The IRS does not waive the 6% penalty automatically, so plan sponsors must track contributions carefully and issue corrected distributions when needed.

Deadlines and Timing

For most employees, 401(k) contributions are taken from each paycheck and deposited according to the plan's schedule, which must be as soon as administratively feasible. The IRS requires that elective deferrals be deposited no later than the 15th day of the month following the month in which they were withheld.

The annual contribution limit is per calendar year, not per plan year. If your plan year does not align with the calendar year, you still must stay within the $23,500 limit for the calendar year. Some plans allow mid-year election changes, and the IRS permits certain corrections through plan amendments or restatements if an error occurs.

Required Minimum Distributions

The IRS now requires 401(k) distributions to begin by April 1 of the year following the year you turn 73, under the SECURE 2.0 provisions that took effect for individuals who turn 73 after December 31, 2022. If you are still working past that age and do not own 5% or more of the company, you can delay RMDs from your current employer's plan until you retire. Roth 401(k) accounts are now subject to RMDs as well, but you can roll them into a Roth IRA to avoid lifetime distributions.