What IRS contribution limits are and why they exist

Contribution limits are the maximum amounts the IRS allows you to put into certain retirement and savings accounts each year. These limits exist because the government uses tax breaks to encourage people to save for retirement and education — but those tax breaks have a ceiling to prevent very high earners from sheltering unlimited income from taxes.

The limits change most years because they are tied to inflation. The IRS announces new limits in October or November for the following year. If you exceed a limit, the IRS can charge you a penalty tax on the overage, and you may owe taxes on money you thought was tax-deductible.

Different account types have different limits. A 401(k) has a higher ceiling than an IRA. A Health Savings Account (HSA) has its own separate limit. Knowing which account you use and what its limit is matters because going over costs you money.

Key Takeaways

  • Contribution limits vary by account type — 401(k)s, IRAs, HSAs, and 529 plans each have their own annual maximum.
  • Limits increase most years to keep pace with inflation, and the IRS announces the new amounts in the fall for the following year.
  • Exceeding a limit triggers a penalty tax on the overage and may disqualify that money from tax deductions you were counting on.
  • Some limits depend on your age (people 50 and older can contribute more) or your income level.
  • Your employer's 401(k) plan documents will state the exact limit for that specific plan, which cannot exceed the IRS maximum.

401(k) and similar workplace retirement plans

A 401(k) is a retirement account offered through your employer. The IRS sets a maximum amount you can contribute from your own paycheck each year. For 2024, that limit is $23,500. For 2025, it is $24,500. If you are 50 or older, you can contribute an additional $7,500 per year (called a "catch-up" contribution), bringing your total to $31,000 for 2024 or $32,000 for 2025.

These limits apply only to money you contribute yourself — not to employer matching contributions. If your employer matches part of what you put in, that match does not count toward your personal limit. However, the combined total of your contributions plus your employer's contributions cannot exceed $69,000 for 2024 or $70,000 for 2025.

Your employer's plan documents will specify the exact limit for your workplace plan. Some plans may set a lower ceiling than the IRS maximum, though this is uncommon. If you change jobs mid-year, each employer's 401(k) has its own separate limit — you cannot split the annual maximum between two employers.

Traditional and Roth IRAs

An IRA (Individual Retirement Account) is a retirement account you open on your own, not through an employer. The contribution limit for both Traditional and Roth IRAs combined is $7,000 per year for 2024 and 2025. If you are 50 or older, you can add an extra $1,000 per year, for a total of $8,000.

The key word is "combined" — if you have both a Traditional IRA and a Roth IRA, your contributions to both accounts together cannot exceed $7,000 in a single year. You can split the money however you want between the two accounts, but the total is the ceiling.

Unlike a 401(k), whether you can deduct your IRA contributions on your taxes depends on your income and whether you have access to a workplace retirement plan. The IRS publishes income phase-out ranges each year that determine how much of your contribution is tax-deductible. If your income is too high, you may not be able to deduct any of your IRA contribution, even though you can still contribute the full amount.

Health Savings Accounts (HSAs)

An HSA is a savings account paired with a high-deductible health insurance plan. Money you put into an HSA is not subject to income tax, and you can withdraw it tax-free to pay may have access to medical expenses. The IRS limits how much you can contribute each year.

For 2024, the limit is $4,150 if you have individual coverage or $8,300 if you have family coverage. For 2025, those limits are $4,300 and $8,550. If you are 55 or older, you can contribute an additional $1,000 per year. These limits apply to all HSA contributions you make in a calendar year, whether through payroll deductions or direct deposits to the account.

HSA limits are separate from any other retirement or savings account limits. You can max out an IRA and an HSA in the same year without penalty. However, if you contribute more than the annual limit to your HSA, the overage is subject to income tax plus a 20 percent penalty.

529 education savings plans

A 529 plan is a tax-advantaged account for saving money to pay for education. Unlike retirement accounts, 529 plans do not have an annual contribution limit set by the IRS. Instead, they have a aggregate limit — a total amount per beneficiary across all 529 accounts, regardless of who opens them.

For 2024 and 2025, the aggregate limit is $235,000 per beneficiary. This means if you open a 529 for your child and a grandparent also opens one for the same child, the combined balance across both accounts cannot exceed $235,000. Once you reach that limit, you cannot add more money until the balance drops below it.

There is also a special rule for annual gifts: you can contribute up to $18,000 per person per year (for 2024) or $19,000 (for 2025) without triggering gift tax. If you are married, you and your spouse can each contribute that amount to the same beneficiary. Amounts above that threshold may require filing a gift tax return, though they do not necessarily trigger a tax.

What happens if you exceed a contribution limit

If you contribute more than the annual limit to a 401(k), IRA, or HSA, the IRS charges a 6 percent excise tax on the overage each year it remains in the account. This is in addition to any income tax you owe on the money. For example, if you over-contribute $1,000 to an IRA, you owe $60 in excise tax that year, and another $60 the next year if you do not withdraw the overage.

The solution is to withdraw the overage and any earnings on it before your tax return deadline (usually April 15 of the following year). If you do this on time, you avoid the excise tax. However, you still owe income tax on the earnings that accumulated on the overage.

Some employers' payroll systems can catch over-contributions to a 401(k) and stop withholding once you hit the limit. Others do not, so if you change jobs or receive a bonus mid-year, you may accidentally exceed the limit. Check with your payroll department if you think you might be close to the ceiling.

How limits change year to year

Most contribution limits are indexed to inflation, meaning they increase automatically when the cost of living rises. The IRS calculates the new amounts based on inflation data and announces them in October or November for the following calendar year.

The increases are usually modest — often $500 to $1,000 for retirement accounts. However, they do add up over time. A 401(k) limit that was $19,500 in 2023 became $23,500 in 2024 and $24,500 in 2025, reflecting cumulative inflation adjustments.

You do not have to do anything to benefit from the increase. Your employer's payroll system and financial institutions automatically update their systems to reflect the new limits. However, it is worth checking the IRS website or your account statements each January to confirm the new limits for the year, especially if you are planning to max out an account.

Frequently Asked Questions

Can I contribute to both a 401(k) and an IRA in the same year?

Yes. The 401(k) limit and the IRA limit are separate. You can contribute the full amount to each account in the same year. However, whether you can deduct your IRA contribution on your taxes depends on your income and whether you have access to a workplace retirement plan like a 401(k).

What if my employer offers a 403(b) or 457 plan instead of a 401(k)?

A 403(b) is offered by nonprofits and schools; a 457 is offered by government employers. Both have the same contribution limits as a 401(k) — $23,500 for 2024 and $24,500 for 2025, plus catch-up contributions if you are 50 or older. The rules are nearly identical to a 401(k).

Do employer matching contributions count toward my personal limit?

No. Your personal contribution limit applies only to money you contribute from your paycheck. Employer matching contributions are separate and count toward a different, higher combined limit. You can receive employer matching without it reducing the amount you can personally contribute.

Can I carry over unused contribution room to next year?

No. Contribution limits reset on January 1 each year. If you do not contribute the full amount in 2024, you cannot add that unused amount to your 2025 limit. The exception is catch-up contributions for people 50 and older, which are a separate allowance each year.

Where can I find the current year's contribution limits?

The IRS publishes contribution limits on its website (irs.gov) each October or November for the following year. Your employer's benefits department and your financial institution also provide the limits for their specific plans and accounts.