Your company’s decision to limit your 401(k) contributions might be due to a set of rules known as the Highly Compensated Employees (HCE) rules. These rules define certain employees as HCEs if their salary significantly exceeds that of other employees. As an HCE, your ability to deposit money into your 401(k) is restricted based on the deposits made by non-HCEs within the company1.
Here’s how it works:
- While the overall IRS limit for 401(k) contributions is $19,500 (as of 2024), your personal limit may be lower due to the HCE rules.
- The company aims to prevent discrimination by ensuring that HCEs don’t disproportionately benefit from the plan compared to other employees.
- If non-HCEs in the company contribute less to their 401(k)s, it affects the maximum amount you can contribute.
In summary, your employer cannot impose a limit below the IRS limit, but the HCE rules may affect your personal contribution limit. It’s essential to understand these rules and work with your benefits department to maximize your contributions within the allowed limits1.
