The limits on IRA and 401(k) plans are based on the inflation-adjusted maximum annual contributions the plans allow, reports the IRS. As of 2015, the annual contribution limit for an IRA is $5,500, while for a 401(k), it is $18,000. Both types of plans allow additional catch-up contributions for those 50 and older.Continue Reading
The Department of the Treasury announces inflation-adjusted retirement account contribution limits each year, according to Forbes. The $18,000 limit for 401(k) plans is $500 more than the $17,500 limit for 2013 and 2014, while the $5,500 contribution limit for an IRA remains the same as the limits for 2013 and 2014.
If a 401(k) account owner makes a contribution in excess of the limit, he is able to withdraw the excess as income subject to standard income taxes without paying the 10 percent early withdrawal penalty tax, says the IRS. If the excess remains in the plan, it is subject to double taxation, and the 401(k) account is no longer eligible as a qualified plan. Excess contributions remaining in an IRA plan account are subject to 6 percent penalty taxes per year.
Taxpayers age 50 and older are able to make catch-up contributions to retirement plans in excess of the standard contribution limits, states the IRS. The limit to catch-up contributions to 401(k) plans is $6,000 as of 2015, up from $5,500 in 2014. The catch-up contribution limit for IRAs is $1,000, an amount that is not adjusted for inflation, reports Forbes.Learn more about Financial Planning