401k Maximum Contribution Limits

The 401k rules that determine your 401k maximum contribution limit — the combined total maximum contribution that you can make each year to ALL 401k plans in which you participate, including standard 401k plans and Roth 401k plans — is the lower of: (1) the maximum percentage contribution limit allowed under each of your employers' plans, or (2) the dollar limits shown below. For example, if your employer's 401k plan allows you to contribute up to a maximum of 10% of your salary, and you earn $50,000, your maximum contribution limit is $5,000, not the $15,500 contribution limit in 2007 that applies only to higher-paid employees.

The maximum contribution limit for all of your 401k plans can be increased each January 1st based on the cost-of-living increase during the prior year. The new limit will be announced by the IRS in mid-October.

— Catch-Up 401k Contribution Limits —

If you are age 50 or older, you may also be eligible to make "catch-up 401k contributions" in addition to your regular 401k limits — IF your employer allows them. (Unfortunately, your employer is not required to do so.) 401k catch-up contributions are limited each year to an additional

The maximum catch-up contribution limit for all of your 401k plans may also be increased each January 1st based on the cost-of-living increase during the prior year. The new catch-up contribution limit will also be announced by the IRS in mid-October. (Note: There is no typographical error in the amounts above. On October 18, 2007, the IRS has announced that the maximum catch-up limit for 2008 will be the same as 2007.)

The above 401k limits apply regardless of whether you participate in just one 401k plan, or if you participate in two or more 401k plans (such as a Roth 401k and a traditional 401k plan). Once again, your combined contributions to ALL plans cannot exceed the above 401k limits.

— Employer Matching Contributions —

The matching contributions made your employer are NOT counted toward your 401k contribution limits. Even if you contribute the maximum amount each year, your employer's matching contributions are in addition to these 401k limits. (FYI: Depending on the design of its 401k plan, a employer can match up to and including 6% of your pre-tax compensation.)

Note: Several different 401k rules apply in addition to the overall contribution limits. The absolute maximum you can contribute will depend on your salary and the type of 401k plan in which you are participating. Review your employer's plan documents for more information.

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