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401k Contribution Limits – What You Need To Know Before Reaching Retirement

Sunday, October 2nd, 2011

Celebrated American boxer George Foreman once stated “The question isn’t at what age I want to retire, it’s at what income.”

While a lot of people found the statement to be funny, many also nodded in agreement with it because of the profound truth it expresses. Careful preparation is surely a crucial ingredient for a triumphant retirement.  

Interested individuals hoping to set aside sufficient savings should dig deeper and learn more about what is the max 401k contribution for the given year. The contributions generally change on a yearly basis and it is very important for you to be updated with that. Once you know the details regarding that, you will see that achieving financial self-reliance in the future is really not an impossible thing.   

Most of the time, it follows that the 410k contribution limits are based on the COLA (or cost of living adjustments) of the earlier year. The contribution limits are reset everytime October comes and it is also often influenced by inflation. This is actually one of the factors considered why the amount for the limit has never been changed from 2008 up to 2010. If you are still unaware about it, the limit for the amount is at $16,500 per year with an allowed $5,500 catch-up contributions for employees over the age of 50.

Regardless of these declared limitations, employers are not legally liable to follow the exact amount and they may implement lower limits if they desire. For that matter, your 401k maximum contribution per year should be a little lower than your expectations so don’t get your hopes too high unless you’ve actually confirmed with your company.

Lastly, it could also help to check an online 401k calculator if you want to get a ballpark figure of how much you are allowed to spend and how much you need to set aside to successfully meet your goals. Speaking with a financial professional may also be helpful just in case you don’t think you get enough information from the online calculators. As you make contributions and save some money, you’ll see that it’s not impossible to reach a good retirement.

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How To Maximize Contributions To IRA And 401k

Sunday, September 25th, 2011

Considering the unstable economy, people have been seeking ways to secure their future after retirement. With the plans given by the US government, people can have retirement savings, as well as a tax cut.

Under these, the traditional and Roth 401k and the traditional and Roth IRA are the widely used plans. Funding for the traditional types of both retirement plans are made through your pre-tax salary. Post-tax contributions and non-taxable earning distributions, on the other hand, are the main features of their Roth types. Their significant differences, though, lie in the IRA and 401k contribution rules, especially the maximum amount and the source of contribution.

Primarily, an employer needs to sponsor your 401k plan, if you’d like to have one. On the other hand, for you to have an IRA, you need to set this up by yourself.

If you have a traditional or a Roth 401k plan, your maximum elective deferral is $16,500. For an IRA plan, however, you can only give up to $5,000 per year from your pre-tax income. The amount that you’ll give up from your pre-tax salary for contribution to your retirement plan is your elective deferral.

Given an additional benefit are the plan participants who have reached at least 50 years old. 401k contribution rules, as well as those of IRA, allow these participants nearing retirement age to add pre-tax contribution to their standard elective deferral. This added benefit is officially termed as catch-up contribution. In a 401k plan, you can give an additional $5,500 on top of your standard pre-tax contribution. In effect, you can contribute a maximum of $22,000 for the whole year. A maximum of $1,000 is what you can add to your standard elective deferral if you’re in an IRA plan.

Of course, another big difference is the presence of matching contributions or its absence, whichever the case may be. Being a self-sponsored retirement plan, an IRA could never have employer matching contributions. Employers of 401k participants, meanwhile, can offer additional plan contributions.

The reason why the IRA and 401k contribution rules were made is to bring convenience to your retirement savings. Putting in more contributions, particularly from your gross salary, would not only give you more money upon retirement, but also a bigger tax cut every year. 

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Rewriting Wrongs To Ensure Your Financial Future?

Friday, April 24th, 2009

Ignorance is no excuse.  And even if it was, it doesn’t matter.  Being excused doesn’t really help you.

At first glance, it appears that there are different rules for the wealthy than for the poor and middle-class in almost every area – taxation, investment, lending, education, happiness.  But that’s just looking at the result.

The real difference between rich and poor in this country is relevant financial education.  There ARE different rules, but what separates people is not money but knowledge.

What you don’t know CAN and does hurt you.

Historically we got our financial education from our families and for this reason our financial experience was unlikely to be significantly different from our parents.  That may have worked when economic and financial trends changed slowly.  But it doesn’t work anymore.

The reality is that if you are applying the financial education you received in your middle-class home you are more likely than ever to end up poor.  Did you read that?  Not middle-class – poor.

How many of these statements would you consider true?

Your home is your biggest and best long term investment.

Paying off your mortgage quickly creates more financial security.

A 401K is the safest, smartest retirement plan option.

High returns require high risk.

If you accepted ANY of these as true, you owe it to yourself to invest in your financial education before you invest anywhere else.  Debunk the myths.  Rewrite the wrongs.  Investing in your education first gives you the knowledge you need to see through these myths and create the future you deserve.

Knowledge in Action is Power.

Invest in yourself, then claim your reward.

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