401k Contribution Limits Explained

Contribution limits are basically a limit on how much total income you can have placed on your 401(k) each year. This is important to take a look at when deciding what percentage of your income to put away in your 401(k), because obviously you can’t go over that amount (not that that is usually a problem for most people).

A good thing with regards to these limits is that the Government is seeing how important retirement saving is, and they are increasing these limits all the time.

One thing to keep in mind, though, is that there are different limits depending on a few things. However, the regular limit for under 50 workers in 2007 is $15,500. In 2008, that number jumps up to $16,000. If you can find a way to reach this number or at least come close to it, congratulations, because you’re doing a great job.

If you’re over 50, you can probably play a little “catch up.” Under the catch up rules, you can contribute an extra $5,000 each year to your 401(k).

Another thing to keep in mind is that your employer might have a limit on how much you can contribute, even if that is below the federal limits. For example, if your employer says that you can only contribute 10% of your salary, and you are making $60,000 per year, you can only contribute $6000 for the year even though the Government limit is higher than that.

So there are some different considerations and limits for 401(k)’s, a lot of it depending on your age and employer. However, it’s very important to understand these limits, and figure out how to best utilize them to secure your financial future.