2016 401(k) Contribution Limit
For 2016, the 401(k) Contribution Limit is $18,000 (Elective deferral) and +$6,000 (Age 50 catch-up).
Effective 2016-01-01Source: Notice 2015-75 (IRS)Verified 2026-09-01
Who it applies to
Employees participating in employer-sponsored deferred compensation plans subject to IRC § 402(g) and § 414(v)
What changed this year, and why
The elective deferral limit and the catch-up contribution limit for older workers for 2016
Common questions
- What is the elective deferral limit for 2016?
- Effective January 1, 2016, the limit on elective deferrals under IRC § 402(g) is $18,000.
- Can workers age 50 or older contribute extra?
- Yes. Effective January 1, 2016, participants aged 50 or older may make additional catch-up contributions of $6,000 under IRC § 414(v).
What the limit counts, and the tax it does not save
An elective deferral is the portion of your compensation that you choose to have your employer contribute to a qualified retirement plan instead of paying directly to you. For 2016, the overall elective deferral limit across all such plans is $18,000. If you are age 50 or older by the end of the year, you may contribute an additional $6,000 on top of that amount. Because the deferral is treated as an employer contribution to a qualified plan, it is not included in your wages subject to income tax when it is made — but unlike a traditional IRA contribution, it does not generate an above-the-line deduction on your tax return. The tax benefit is instead that the amount is excluded from your wages entirely, so you never pay income tax on the money that goes into the plan on a pre-tax basis. However, these deferrals remain subject to social security and Medicare taxes. The limit applies to the total of all elective deferrals you make across every employer plan you participate in during the year, not separately to each plan.
Elective Deferrals If you are covered by certain kinds of retirement plans, you can choose to have part of your compensation contributed by your employer to a retirement fund, rather than have it paid to you. The amount you set aside (called an elec tive deferral) is treated as an employer contribu tion to a qualified plan.
Publication 525 (2016), Taxable and Nontaxable Income (IRS)
One limit across every plan you defer into
The IRS imposes a single overall limit on elective deferrals that applies across every plan you participate in. For 2016, in most cases, the total you may defer to the listed plans is $18,000. This is not a per-plan cap; it is an aggregate cap. If you work for two employers and each sponsors a retirement plan, you still may not push $18,000 into each. The amounts you defer across all of the covered plans must be added together, and the sum must stay at or below the overall limit. Certain plans also have their own plan-specific limits discussed elsewhere, and amounts deferred under those specific limits count toward the overall cap as well. The employer or plan administrator applies the proper annual limit when computing contributions, but the responsibility for staying under the overall limit rests with you. If you contribute to more than one plan, you need to track your own total deferrals to make sure the combined amount does not exceed $18,000.
Overall limit on deferrals. For 2016, in most cases, you shouldn't have deferred more than a total of $18,000 of contributions to the plans lis ted in (1) through (3), earlier. The specific plan limits for the plans listed in (4) through (7), ear lier, are discussed later. Amounts deferred un der specific plan limits are part of the overall limit on deferrals. Your employer or plan administrator should apply the proper annual limit when figuring your plan contributions. However, you are responsi ble for monitoring the total you defer to ensure that the deferrals aren't more than the overall limit.
Publication 525 (2016), Taxable and Nontaxable Income (IRS)
The catch-up once you are old enough for it
Participants who reach age 50 by the end of the tax year may make catch-up contributions, which are additional elective deferrals on top of the regular annual limit. For 2016, the catch-up amount is $6,000. This means an eligible participant may defer the regular $18,000 plus the additional $6,000, for a combined maximum across all covered plans. The catch-up is available to participants in plans such as cash-or-deferred arrangements, the Thrift Savings Plan, tax-sheltered annuities, SARSEPs, SIMPLE plans, and section 501(c)(18)(D) plans. The section 457 plan has its own separate catch-up rule with a different structure that may allow an even higher deferral in the three years before normal retirement age. The catch-up exists so that older workers, who may have had fewer opportunities to save earlier in their careers, can make up ground as they approach retirement. The additional $6,000 is not automatic; your plan must permit catch-up contributions, and you must affirmatively elect to make them.
Catchup contributions. You may be allowed catchup contributions (additional elective de ferrals) if you are age 50 or older by the end of your tax year.
Publication 525 (2016), Taxable and Nontaxable Income (IRS)
What happens if you defer more than the limit
If your elective deferrals for the year go over the $18,000 limit (or, if you are age 50 or older, the $18,000 plus $6,000 catch-up), the excess is called an excess deferral. The first step is to notify your plan by the date the plan requires. If the plan allows, it will distribute the excess back to you, together with any income that the excess earned while it sat in the account. When you participate in more than one plan, you can choose which plan pays out the excess, but you must tell each plan by its own deadline how much it should distribute. The corrective distribution must reach you by April 15 of the year after the year of the deferral. The excess deferral is included in your income for the year it was contributed, so you cannot simply leave it in the plan to avoid tax. If the excess is not distributed by the deadline, you are taxed on it twice: once when contributed and again when eventually distributed. Timely notification and distribution are what keep the tax cost to a single inclusion.
Excess deferrals. If your deferrals exceed the limit, you must notify your plan by the date re quired by the plan. If the plan permits, the ex cess amount will be distributed to you. If you participate in more than one plan, you can have the excess paid out of any of the plans that per mit these distributions.
Publication 525 (2016), Taxable and Nontaxable Income (IRS)
Roth deferrals count against the same limit
Employers with section 401(k) and section 403(b) plans can establish qualified Roth contribution programs that allow participants to elect to have some or all of their elective deferrals designated as aftertax Roth contributions. These designated Roth contributions are treated as elective deferrals for purposes of the contribution limits, but unlike regular elective deferrals, they are included in your taxable income in the year they are made. For 2016, designated Roth contributions count toward the overall $18,000 elective deferral limit. Because designated Roth contributions are included in your wages, they do not reduce your current-year income tax liability, but qualified distributions from the Roth account in retirement can be tax-free. A distribution must satisfy a holding period requirement before it becomes a qualified distribution. Your retirement plan must maintain separate accounts and recordkeeping for the designated Roth contributions, distinguishing them from pretax elective deferrals.
Designated Roth contributions are treated as elective deferrals, except that they are included in income.
Publication 525 (2016), Taxable and Nontaxable Income (IRS)
How each figure was verified
Each number below was read from a stored copy of the document named beside it, and checked to occur word for word in the quoted sentence. The digest is of that stored text.
Notice 2015-75 (IRS)
- Elective deferral
The limitation under § 402(g)(1) on the exclusion for elective deferrals described in § 402(g)(3) remains unchanged at $18,000.
- Age 50 catch-up
The dollar limitation under § 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in § 401(k)(11) or § 408(p) for individuals aged 50 or over remains unchanged at $6,000.