What is the maximum 401k contribution per year?Posted on April 20th, 2011 William No comments
You’ve probably heard that you should max out your retirement contributions each year, if you’re financially able to do so. Aside from the obvious reasons – a little saved now can be worth more than a lot saved later – the government puts a limit on how much money you can put into a retirement account each year. The maximum amount generally increases each year, so even if you put aside the maximum last year, it’s worth checking to see if you can increase your savings.
Notice that I said generally, not always…and as it happens, the maximum 401k contribution has stayed the same in 2011 as it was in 2009 and 2010. If you are under age 50, you can contribute a maximum of $16,500 to a 401(k), 403(b), or 457 plan; if you are 50 or over, you can put in an additional $5,500 (for a total of $22,000). Note that you may have multiple plans (for example, a traditional and a Roth 401k) but the combined contributions cannot exceed these limits. Additionally, you cannot contribute more money to a retirement plan than you actually earn!
In addition to the amount you put in, your employer is permitted to contribute to your account as well; this contribution (generally in the form of matching funds, such as a 50% match on your savings) must be made with pretax dollars regardless of whether you have a traditional or a Roth account. The employer contribution can be up to 25% of the employee’s pretax earnings, up to a total of $32,500. This means that the combined contribution (employee + employer) can reach a total of up to $49,000 (more if you’re over 50).
Maxed out your 401(k)? Not to worry – you still have IRA contributions to make! IRAs and 401k plans are completely separate; maxing out one doesn’t affect your ability to contribute to the other. However, the IRA contribution limits are much lower: $5,000 per year, or $6,000 if you’re 50 or older. As with the 401(k), you can divide your contributions between multiple IRAs, which may be traditional, Roth, or a combination, but the total contribution must be no more than $5,000 (or $6,000) per year.
Do note that if you make a lot of money, you may not be eligible for certain types of retirement accounts; once your income reaches six figures, you’ll want to consult with a tax professional.