The 415 limit is named for section 415 of the Internal Revenue Code(IRC). It reflects the maximum allowable contributions to a qualified retirement savings plan in a given year. The maximum employee contributions are dictated by section 402(g), but the overall contributions from all sources are limited by section 415. This includes employee deferrals, employer matching, and profit-sharing contributions.
Key Takeaways
- Many employers offer 401(k) retirement plans to their employees in which limits allow up to $22,500 for 2023 and $23,000 for 2024.
- Workers over age 50 are permitted catch-up contributions of an additional $7,500 each year for 2023 and 2024.
- If employers match contributions, the 415 limits—inclusive of matches on catch-ups—is $73,500 for 2023 and $76,500 for 2024.
What Is the 415 Limit?
Unlike regular employee deferrals, catch-up contributions are not included in the 415 limit. While there is an annual limit imposed on catch-up contributions, it is designated by a different section of the Internal Revenue Service(IRS) code governing contributions to qualified retirement savings plans.
The 415 limit for 401(k) plansis $66,000 for 2023 and $69,000 for 2024. Employees may only contribute up to $22,500 in 2023 and $23,000 in 2024. The balance can be composed of employee contributions and matching or profit-sharing contributions.
Contributions are considered to be annual additions. This means that your employer can potentially contribute much more than an individual to a 401(k), although this is not at all usual. It's very common for most employers to match only up to 3% to 5% of employee contributions.
Catch-Up Contributions
To encourage employees nearing retirement to increase their savings, the IRS allows people aged 50 and over to make annual catch-up contributions over the 402(g) and 415 limits. Because these contributions are defined separately in IRC code 414(v), they are not included as annual additions under section 415. In the case of a plan audit, therefore, any contributions made to a plan as allowable catch-up contributions are not included in the 415 limit test.
TheInternal Revenue Service(IRS) allows plan participants 50 and over to make annual catch-up contributions to encourage those nearing retirement to bulk up their savings. The allowable catch-up contribution for 401(k) plans for 2023 is $7,500. The amount remains the same for the 2024 tax year.
However, catch-up contributions can only be made by employees who have maximized their traditional salary-deferral contributions. This increases the maximum employee contribution to $30,000 in 2023 ($30,500 in 2024), and the maximum total annual contribution to $73,500 in 2023 ($76,500 in 2024) for plan participants 50 and over.
Going Over the 415 Limit
As noted above, there are limits to how much individuals can contribute to their retirement plans. These limits are set by the IRS and are adjusted annually for inflation. But, there are consequences if individuals make contributions that exceed the limit.
Anything that is deposited above the 415 limit is considered overfunding of the retirement account. As such, these monies do not enjoy the same tax-deferred benefits as qualified retirement money. If those excess funds are used incorrectly, the IRS may further impose fines and back taxes.
Individuals can fix an overfunding mistake by withdrawing the excess and/or forfeiting any matches made by their employer. It is the employer's responsibility to report any corrections to the IRS. Any amounts disbursed are included in the individual's taxable income. You may also face an early withdrawal penalty of 10%.
What Is a Catch-up Contribution?
A catch-up contribution is money that people 50 and over can save in their retirement plans in addition to the annual limits set by the IRS. For instance, a 55-year-old employee who works for Company X can save up to $22,500 in their 401(k) plus an additional $7,500 as their catch-up contribution in 2023. The amount set by the IRS for 2024 is $23,000 and $7,500 as the catch-up contribution. People who save money in an individual retirement account (IRA) can save $6,500 in 2023 and $7,000 plus a catch-up contribution of $1,000 for each year.
What Is Section 415 of the Internal Revenue Code?
Section 415 of the Internal Revenue Code relates to contribution and benefit limits of qualified plans, including defined benefits plans, defined contribution plans, employee annuities, and simplified employee pensions. Put simply, it dictates how much an account holder can contribute to and receive from these accounts.
What Is a 415 Limit Violation?
A 415 limit violation means that you have exceeded the maximum contribution limit as set by the IRS. These amounts are set and published by the IRS annually after being adjusted for inflation. For 2023, the maximum contribution you can make to a 401(k) or similar plan is $22,500. This amount increases to $23,000 in 2024. Exceeding these amounts results in a 415 violation and must be corrected. If they remain unfixed, the excess contributions may lead to penalties and fees.
The Bottom Line
Catch-up contributions can help people 50 and over save additional money for their retirement. The IRS sets these limits each year after they are adjusted for inflation. You can make an additional contribution of $7,500 in 2023 and 2024 to your 401(k), 403(b), or similar employer-sponsored plan if you qualify. This is in addition to the annual limits set for these plans of $22,500 and $23,000 in 2023 and 2024, respectively. Although these extra contributions aren't included in the 415 limits, be mindful that you don't exceed your annual contribution amounts or you may face fines and penalties.
