Editing 401(k) (section)

==Technical details==

===Contribution deferral limits===
{| class="wikitable collapsible" cellpadding="1" cellspacing="1" style="margin:auto; margin:0 0 1em 1em; font-size:90%; float:right;"
|-
! colspan="6" style="background:#ccf; text-align:center;" |Historical 401(k) Contribution Limits<ref name=ContributionLimitHistory>{{cite web |url=https://www.irs.gov/pub/irs-tege/cola-table.pdf |title=Cost-of-Living Adjustments for Retirement Items |publisher=Internal Revenue Service |date=7 November 2023 |access-date=24 January 2024}}</ref>
|-
!align="right"|Year||Employee<br />Elective||Total<br />Employee<br />and<br />Employer<br />(Age < 50)||Catch-Up<br />(Ages 50–59, 64+)
!Catch-Up
(Age 60–63)
!Total<br />Employee,<br />Employer,<br />and<br />Catch-Up<br />(Age 50+)
|-
|align right|1978||?||?||—
|—||?
|-
|align right|1979||?||?||—
|—||?
|-
|align right|1980||?||?||—
|—||?
|-
|align right|1981||?||?||—
|—||?
|-
|align right|1982||?||?||—
|—||?
|-
|align right|1983||?||?||—
|—||?
|-
|align right|1984||?||?||—
|—||?
|-
|align right|1985||?||?||—
|—||?
|-
|align right|1986||?||?||—
|—||?
|-
|align right|1987||?||?||—
|—||?
|-
|align right|1988||?||?||—
|—||?
|-
|align right|1989||$7,627||$30,000||—
|—||$30,000
|-
|align right|1990||$7,979||$30,000||—
|—||$30,000
|-
|align right|1991||$8,475||$30,000||—
|—||$30,000
|-
|align right|1992||$8,728||$30,000||—
|—||$30,000
|-
|align right|1993||$8,994||$30,000||—
|—||$30,000
|-
|align right|1994||$9,240||$30,000||—
|—||$30,000
|-
|align right|1995||$9,240||$30,000||—
|—||$30,000
|-
|align right|1996||$9,500||$30,000||—
|—||$30,000
|-
|align right|1997||$9,500||$30,000||—
|—||$30,000
|-
|align right|1998||$10,000||$30,000||—
|—||$30,000
|-
|align right|1999||$10,000||$30,000||—
|—||$30,000
|-
|align right|2000||$10,500||$30,000||—
|—||$30,000
|-
|align right|2001||$10,500||$35,000||—
|—||$35,000
|-
|align right|2002||$11,000||$40,000||$1,000
|—||$41,000
|-
|align right|2003||$12,000||$40,000||$2,000
|—||$42,000
|-
|align right|2004||$13,000||$41,000||$3,000
|—||$44,000
|-
|align right|2005||$14,000||$42,000||$4,000
|—||$46,000
|-
|align right|2006||$15,000||$44,000||$5,000
|—||$49,000
|-
|align right|2007||$15,500||$45,000||$5,000
|—||$50,000
|-
|align right|2008||$15,500||$46,000||$5,000
|—||$51,000
|-
|align right|2009||$16,500||$49,000||$5,500
|—||$54,500
|-
|align right|2010||$16,500||$49,000||$5,500
|—||$54,500
|-
|align right|2011||$16,500||$49,000||$5,500
|—||$54,500
|-
|align right|2012||$17,000||$50,000||$5,500
|—||$55,500
|-
|align right|2013||$17,500||$51,000||$5,500
|—||$56,500
|-
|align right|2014||$17,500||$52,000||$5,500
|—||$57,500
|-
|align right|2015||$18,000||$53,000||$6,000
|—||$59,000
|-
|align right|2016||$18,000||$53,000||$6,000
|—||$59,000
|-
|align right|2017||$18,000||$54,000||$6,000
|—||$60,000
|-
|align right|2018||$18,500||$55,000||$6,000
|—||$61,000
|-
|align right|2019||$19,000||$56,000||$6,000
|—||$62,000
|-
|align right|2020||$19,500||$57,000||$6,500
|—||$63,500
|-
|align right|2021||$19,500||$58,000||$6,500
|—||$64,500
|-
|align right|2022||$20,500||$61,000||$6,500
|—||$67,500
|-
|align right|2023||$22,500||$66,000||$7,500
|—||$73,500
|-
|align right|2024||$23,000||$69,000||$7,500
|—||$76,500
|-
|2025
|$23,500
|$70,000
|$7,500
|$11,250
|$77,500–$81,250
|}

There is a maximum limit on the total yearly ''employee'' pre-tax or Roth salary deferral into the plan. This limit, known as the "402(g) limit", was $19,000 for 2019, $19,500 for 2020–2021, $20,500 for 2022, $22,500 for 2023, and $23,000 for 2024.<ref name=2019limits>{{cite press release|url=https://www.irs.gov/newsroom/401k-contribution-limit-increases-to-19000-for-2019-ira-limit-increases-to-6000 |title=401(k) contribution limit increases to $19,000 for 2019; IRA limit increases to $6,000 |publisher=Internal Revenue Service |date=1 November 2018}}</ref><ref>{{Cite web|title=401k Plans Deferrals and matching when compensation exceeds the annual limit {{!}} Internal Revenue Service|url=https://www.irs.gov/retirement-plans/401k-plans-deferrals-and-matching-when-compensation-exceeds-the-annual-limit|access-date=20 January 2022|website=www.irs.gov|language=en}}</ref><ref>{{Cite web |last=Keshner |first=Andrew |title=You can save up to $23,000 in your 401(k) next year, IRS says |url=https://www.marketwatch.com/story/you-can-save-up-to-23-000-in-your-401-k-next-year-the-irs-says-43778f8e |access-date=1 November 2023 |website=MarketWatch |language=EN-US}}</ref> For future years, the limit may be indexed for inflation, increasing in increments of $500. Employees who are at least 50 years old at any time during the year are now allowed additional pre-tax "catch up" contributions of up to $6,000 for 2015–2019, and $6,500 for 2020–2021.<ref name="2018limits">"[https://www.irs.gov/pub/irs-drop/n-17-64.pdf Notice 2017-64: 2018 Limitations Adjusted As Provided in Section 415(d), etc.]" ''Internal Revenue Service''. October 19, 2017.</ref><ref name= 2019limits/> The limit for future "catch up" contributions may also be adjusted for inflation in increments of $500. In eligible plans, employees can elect to contribute on a pre-tax basis or as a Roth 401(k) contribution, or a combination of the two, but the total of those two contributions amounts must not exceed the contribution limit in a single calendar year. This limit does not apply to post-tax non-Roth elections.

If the employee contributes more than the maximum pre-tax/Roth limit to 401(k) accounts in a given year, the excess, as well as the deemed earnings for those contributions, must be withdrawn or corrected by April 15 of the following year. This violation most commonly occurs when a person switches employers mid-year and the latest employer does not know to enforce the contribution limits on behalf of their employee. If this violation is noticed too late, the employee will not only be required to pay tax on the excess contribution amount the year was earned, the tax will effectively be doubled as the late corrective distribution is required to be reported again as income along with the earnings on such excess in the year the late correction is made.

Plans which are set up under section 401(k) can also have employer contributions that cannot exceed other regulatory limits. [[Employer matching contribution]]s can be made on behalf of designated Roth contributions, but the employer match must be made on a pre-tax basis.<ref>{{cite web |url=https://www.irs.gov/pub/irs-pdf/p4530.pdf |title=IRS Publication 4530: Designated Roth Accounts under a 401(k) or 403(b) Plan: Frequently Asked Questions (FAQs) |publisher=Internal Revenue Service }}</ref>

Some plans also have a profit-sharing provision where employers make additional contributions to the account and may or may not require matching contributions by the employee. These additional contributions may or may not require a matching employee contribution to earn them.<ref>"[https://www.law.cornell.edu/uscode/text/26/404 26 CFR §404(a)(3)(A)(i)]". via ''Legal Information Institute''. Cornell University Law School.</ref><ref>"[https://www.irs.gov/pub/irs-pdf/p560.pdf Publication 560: Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans]". 2016.</ref> As with the matching funds, these contributions are also made on a pre-tax basis.

There is also a maximum 401(k) contribution limit that applies to all employee and employer 401(k) contributions in a calendar year. This limit is the section 415 limit, which is the lesser of 100% of the employee's total pre-tax compensation or $56,000 for 2019, or $57,000 in 2020.<ref name= 2018limits/><ref name=2019limits/> For employees over 50, the catch-up contribution limit is also added to the section 415 limit.

Governmental employers in the United States (that is, federal, state, county, and city governments) are currently barred from offering 401(k) retirement plans unless the retirement plan was established before May 1986. Governmental organizations may set up a section 457(b) retirement plan instead. IRS Raises 2022 401(k) Contribution Limit to $20,500, a $1,000 boost from 2021 contribution limits.<ref>{{Cite web|title=401(k) Contribution Limits for 2022|url=https://www.kiplinger.com/retirement/retirement-plans/401ks/603949/401k-contribution-limits-for-2022|access-date=21 December 2021|website=Kiplinger|date=17 December 2021 |language=en}}</ref>

===Contribution deadline===
For a corporation, or LLC taxed as a corporation, contributions must be made by the end of a calendar year. For a sole proprietorship, partnership, or an LLC taxed as a sole proprietorship, the deadline for depositing contributions is generally the personal tax filing deadline (April 15, or September 15 if an extension was filed).

===Highly compensated employees (HCE)===
To help ensure that companies extend their 401(k) plans to low-paid employees, an IRS rule limits the maximum deferral by the company's highly compensated employees (HCEs) based on the average deferral by the company's non-highly compensated employees (NHCEs). If the less compensated employees save more for retirement, then the HCEs are allowed to save more for retirement. This provision is enforced via "non-discrimination testing". Non-discrimination testing takes the deferral rates of HCEs and compares them to NHCEs. In 2008, an HCE was defined as an employee with compensation greater than $100,000 in 2007, or as an employee that owned more than 5% of the business at any time during the year or the preceding year.<ref name="US CODE Title 26,414q">{{cite web |url=https://www.law.cornell.edu/uscode/text/26/414-#q|title=US CODE Title 26,414(q) |publisher=Cornell University Law School |year=2007 }}</ref> In addition to the $100,000 limit for determining HCEs, employers can elect to limit the top-paid group of employees to the top 20% of employees ranked by compensation.<ref name="US CODE Title 26,414q"/> That is, for plans with the first day of the plan-year in the 2007 calendar year, HCEs are employees who earned more than $100,000 in gross compensation (also known as 'Medicare wages') in the prior year. For example, most testing done in 2009 was for the 2008 plan-year, which compared 2007 plan-year gross compensation to the $100,000 threshold in order to determine who was an HCE and who was an NHCE. The threshold was $130,000 for 2020, and is $160,000 for 2025.

The actual deferral percentage (ADP) of all HCEs as a group cannot exceed 2 percentage points greater than all NHCEs as a group. This is known as the ADP test. When a plan fails the ADP test, it essentially has two options to come into compliance. A return of excess can be given to the HCEs to lower the HCE ADP to a passing level, or it can process a "qualified non-elective contribution" (QNEC) to some or all of the NHCEs in order to raise the NHCE ADP to a passing level. A return of excess requires the plan to send a taxable distribution to the HCEs (or reclassify regular contributions as catch-up contributions subject to the annual catch-up limit for those HCEs over 50) by March 15 of the year following the failed test. A QNEC must be vested immediately.

The annual contribution percentage (ACP) test is similarly performed but also includes employer matching and employee after-tax contributions. ACPs do not use the simple 2% threshold, and include other provisions which can allow the plan to "shift" excess passing rates from the ADP over to the ACP. A failed ACP test is likewise addressed through return of excess, or a QNEC or qualified match (QMAC).

There are a number of "[[Safe harbor (law)|safe harbor]]" provisions that can allow a company to be exempted from the ADP test. This includes making a "safe harbor" employer contribution to employees' accounts. Safe harbor contributions can take the form of a match (generally totaling 4% of pay) or a non-elective profit sharing (totaling 3% of pay). Safe harbor 401(k) contributions must be 100% vested at all times with immediate eligibility for employees. There are other administrative requirements within the safe harbor, such as requiring the employer to notify all eligible employees of the opportunity to participate in the plan, and restricting the employer from suspending participants for any reason other than due to a hardship withdrawal.

===Automatic enrollment===
Employers are allowed to automatically enroll their employees in 401(k) plans, requiring employees to actively opt out if they do not want to participate (traditionally, 401(k)s required employees to opt in). Companies offering such automatic 401(k)s must choose a default investment fund and saving rate. Employees who are enrolled automatically will become investors in the default fund at the default rate, although they may select different funds and rates if they choose, or even opt out completely.<ref>{{cite web |url=http://www.retirementmadesimpler.org/WhoWeAre/MediaFAQs.shtml |title=Retirement Made Simpler: FAQs |access-date=9 March 2010 |archive-url=https://web.archive.org/web/20100323014944/http://www.retirementmadesimpler.org/WhoWeAre/MediaFAQs.shtml |archive-date=23 March 2010 |url-status=dead }}</ref>

Automatic 401(k)s are designed to encourage high participation rates among employees. Therefore, employers can attempt to enroll non-participants as often as once per year, requiring those non-participants to opt out each time if they do not want to participate. Employers can also choose to escalate participants' default contribution rate, encouraging them to save more.<ref>{{cite web |url=http://www.dol.gov/ebsa/regs/fedreg/final/07-5147.pdf |title=Default Investment Alternatives Under Participant Directed Individual Account Plans; Final Rule |publisher=Department of Labor |access-date=9 March 2010 |archive-url=https://web.archive.org/web/20100326044845/http://www.dol.gov/ebsa/regs/fedreg/final/07-5147.pdf |archive-date=26 March 2010 |url-status=dead }}</ref>

The [[Pension Protection Act of 2006]] made automatic enrollment a safer option for employers. Prior to the Pension Protection Act, employers were held responsible for investment losses as a result of such automatic enrollments. The Pension Protection Act established a safe harbor for employers in the form of a "Qualified Default Investment Alternative", an investment plan that, if chosen by the employer as the default plan for automatically enrolled participants, relieves the employer of financial liability. Under Department of Labor regulations, three main types of investments qualify as QDIAs: lifecycle funds, balanced funds, and managed accounts. QDIAs provide sponsors with fiduciary relief similar to the relief that applies when participants affirmatively elect their investments.<ref>{{cite web |url=http://www.dol.gov/ebsa/newsroom/fsdefaultoptionproposalrevision.html |title=Default Investment Alternatives Under Participant-Directed Individual Account Plans |publisher=Department of Labor |access-date=9 March 2010 |archive-url=https://web.archive.org/web/20101223111906/http://www.dol.gov/ebsa/newsroom/fsdefaultoptionproposalrevision.html |archive-date=23 December 2010 |url-status=dead }}</ref>

===Fees===
401(k) plans charge fees for administrative services, record-keeping services, investment management services, and sometimes outside consulting services. They can be charged to the employer, the plan participants or to the plan itself and the fees can be allocated on a per participant basis, per plan, or as a percentage of the plan's assets. For 2011, the average total administrative and management fees on a 401(k) plan was 0.78 percent or approximately $250 per participant.<ref>{{cite web|url=http://www.ici.org/pdf/rpt_11_dc_401k_fee_study.pdf |title=Defined Contribution / 401(k) Fee Study | author=[[Deloitte Consulting LLP]] for the [[Investment Company Institute]] |date=November 2011}}</ref> However small businesses can suffer especially higher plan fees.<ref>[https://investment-fiduciary.com/2010/07/15/sucker-401k-plans/ Small Business 401k, Big Plan Fees! ]</ref> The United States Supreme Court ruled, in 2015, that plan administrators could be sued for excessive plan fees and expenses, in Tibble v. Edison International.<ref>{{cite web|url=http://www.scotusblog.com/2015/05/opinion-analysis-justices-confirm-continuing-duty-for-erisa-trustees-to-monitor-investments/|title=Opinion analysis: Justices confirm continuing duty for ERISA trustees to monitor investments|date=19 May 2015}}</ref>  In the Tibble case, the Supreme Court took strong issue with a large company placing plan investments in "retail" mutual fund shares as opposed to "institutional" class shares.<ref>{{Cite web |url=http://retirement-plan-lawyer.com/401k-plan-trustees-have-continuing-duty-to-monitor/ |title=Supreme Court Permits Cause of Action for Putting 401(k) Investments in Retail as Opposed to Institutional Shares |access-date=2015-08-06 |archive-url=https://web.archive.org/web/20160305181031/http://retirement-plan-lawyer.com/401k-plan-trustees-have-continuing-duty-to-monitor/ |archive-date=2016-03-05 |url-status=usurped }}</ref>

===Top-heavy provisions===
The IRS monitors defined contribution plans such as 401(k)s to determine if they are top-heavy, or weighted too heavily in providing benefits to [[key employee]]s. If the plans are too top-heavy, the company must remedy this by allocating funds to the other employees' (known as non-key employees) benefit plans.<ref>{{cite web|url=https://www.irs.gov/Retirement-Plans/401k-Plan-Fix-It-Guide-The-Plan-was-Top-Heavy-and-Required-Minimum-Contributions-Were-not-Made-to-The-Plan |title=401(k) Plan Fix-It Guide - The plan was top-heavy and required minimum contributions weren't made to the plan. |publisher=irs.gov |date=2015-10-23 |access-date=2016-04-01}}</ref>