Many people have made the choice to prepare for their retirement and use their company’s retirement plan to do it. For those of you that are getting started early were trying to catch up later in life it is important to understand what your 401k contribution limits are. By understanding your personal and employer limits, you will be able to plan well for the future. By the time you’re finished with this article you’ll know what is available to you in terms of contribution limits as well as have a few common investment questions answered.
To begin with, we will start with personal 2009 401k contribution limits, so that you know what you can do yourself. There are two different levels when it comes to your own personal contributions. For younger employees that are just getting started or midway through their working years the normal limitation is going to be $16,500. As you can tell this is done up since the 401k contribution limits for 2008. It has been decided at this point that the limits of contribution for your retirement account will increase as inflation increases, which is a great change because it make sure that you can adequately prepare for your future retirement.
For those who will better in their later working years, and are finding that they would like to put more money back for their retirement, there is an option to contribute more to your 401k. The 401k contribution limit for 2009s catch up program will allow you to save an additional $5500. This means that you will be allowed to put away a total of $22,000 into your employer backed retirement fund for the year 2009.
In addition to this, employers often will contribute some extra bonus to your retirement account. Often they do this as an employer match to whatever money you are putting aside yourself as an incentive to make sure people are planning for retirement. For employer there is a maximum of 6% of the employee’s income but they can contribute to your 401k plan. This means for someone who makes in the range of $100,000 a year, they can have an additional $6000 added to their retirement account by their employer.
There are many investment questions that come up when it comes to contributing to your 401k. Many people ask if completing a 401k rollover will affect the amount of money that they are able to contribute to their retirement. It is important now that rollovers have no effect on your retirement contributions, so don’t factor that in to your yearly maximum.
Also, many people talk about whether or not they should contribute to their 401k beyond the level where their employer matches their contributions. This is because investing the additional money above and beyond what the employer matches an IRA will often give you more options in terms of what you can invest in while still getting the tax savings. This is something to speak about with your financial planner because each person’s situation is different. Some people prefer to have one single account so that they know where everything else, while others like to take a very direct hand when it comes to the investment of their retirement account funds, in which case a self-directed IRA might be a better option.
Hopefully this is answered your questions on 401k contribution limits. It is very important to make sure that you are making the effort to put aside 10% or more of your income every year so that you are well prepared for your retirement years in the future. By contributing the maximum to your personal 401k and getting the employer match, you’ll be well on your way to a comfortable and perhaps even early retirement. For information on 401k rollovers, make sure to read the rest of this blog.