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What Is The Max Contribution To 401K?

There are limits to how much an employee can invest in a 401k each year. These are established by the federal government and are contributed tax-free. In 2009, the limit was raised to $15,500 for employees under the age of 50. It went up $1,000 a since the year before. The limits for employees over 50 are different. The limit is higher so that older workers can catch up on their retirement planning by putting more tax-free money in. The yearly limit for people over 50 is $22,000.

Just what is a 401K anyway?

It is a powerful investment tool. It allows you to save for retirement and defer the income tax on that money until you withdraw it from the account. These are usually employee-sponsored plans and some employers will “match” what an employee contributes. The employee also gets to choose which option they would like the money invested in, stocks, bonds or money markets. An employee may also do a combination of the three.

Are there penalties if I take money out early?

Most all employers place restrictions on employees taking the money out before the age of 59 1/2. The employee may also be responsible for an additional tax of 10% of the taxable amount. Of course all other taxes that are due become payable also.

Some employers also contribute or match what their employees put in. There are limits on this also. In 2009, employers may contribute 6% maximum. This is how much they will match of the employee’s salary. An employee could put in more but then it would not be matched.

Some 401k plans also let an employee’s contribute over the untaxed limit but the money is taxed at the regular rate. There is a limit to how much a employee can put in a 401K. This is set by the government and is currently $49,000 or 100% of your salary whichever is less.

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What Is The Max Contribution To 401K?

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