• Cristian Borcan, CPA

Retirement Topics - 401(k) and Profit-Sharing Plan Contribution Limits

Overall limit on contributions

Total annual contributions (annual additions) to all of your accounts in plans maintained by one employer (and any related employer) are limited. The limit applies to the total of:

  • elective deferrals (but not catch-up contributions)

  • employer matching contributions

  • employer nonelective contributions

  • allocations of forfeitures

The annual additions paid to a participant’s account cannot exceed the lesser of:

  1. 100% of the participant's compensation, or

  2. $57,000 ($63,500 including catch-up contributions) for 2020; $56,000 ($62,000 including catch-up contributions) for 2019.

However, an employer’s deduction for contributions to a defined contribution plan (profit-sharing plan or money purchase pension plan) cannot be more than 25% of the compensation paid (or accrued) during the year to eligible employees participating in the plan (see Employer Deduction in Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans).

There are separate, smaller limits for SIMPLE 401(k) plans.

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