What Are The Limits On 401K?

The 401K is one of the best retirement plans for employees today. It does not come without limitations. What are the limits on the 401K plan?

The 401K retirement plan is a well defined government regulated tax deferral retirement savings plan that employers can establish for their employees. There are rules that govern the contributions and the age range for contributions and withdrawals set by the Federal government for the protection of both employers and employees.

What Are the Limits On 401K?

For the employee there are limits on the amount of tax deferred income that can be contributed in a year. In 2009 the cap on contributions was raised. The contribution cap has been raised by $1000 every two or three years by the government to allow for increased income and the need for greater retirement benefits. The basic limitation on 401K contributions is 25% of the employees income up to a designated amount.

What Are the Limits on 401K for Employees 49 Years Old or Younger?

The employee who is age 49 or younger may contribute up to 25% of his earned income, not to exceed $16,500 for the years 2009 and 2010. This is up from $15,500 in 2008. The employee does not pay taxes on any deferred income contributions to the 401K plan. The contribution cap was raised to allow for greater retirement benefits that will be needed due to cost of living raises.

What Are the Limits on 401K for Employees Age 50 and Older?

For the employee who has reached age 50 the tax deferred income contribution allowed is up to 25% of his earned income but cannot exceed $22,000 a year for the tax years of 2009 and 2010.

Do Higher Paid Employees Have Higher Limits on 401K?

For highly paid employees there are limits on how much can be contributed because the government does not want to upper management or upper tier employees to have the opportunity to contribute more than employees at lower pay scales.

Related posts

1. How Much Can I Put In My 401K?
2. What Are Contribution Limits For 401K & Roth Ira’S For 2010?
3. What Is The Max Contribution To 401K?
4. How to Make a Contribution To a 401K?
5. Is A Simple 401K A Qualified Plan?

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