Retirement plan decisions made easy
What Is the Maximum Pre-tax 401k Contribution?
There are two different limits on maximum pre-tax 401k contributions, and you are limited to the lower of the two.
The Federal Government Sets a Maximum Pre-Tax 401k Contribution Amount
This applies to both Regular 401k plans and Roth 401k plans. That means that if you are trying to save as much money as possible in your 401k, you want to use a Roth 401k if you have that option.
The Federal Limits on Maximum Pre-Tax 401k Contributions Change Each Year
For 2009, the limit for an employer's contribution is $16,500, and no more than 100 percent of compensation. There's a much larger limit on the combined employee and employer contribution: $49,000.
The Federal Government also Sets a Limit on How Much Income Can Be Used in Calculating Your Maximum Pre-Tax 401k Contribution
That limit is $245,000 for 2009. For example, if your employer allows you to contribute a maximum of six percent, then your total contribution can be no greater than $14,700 (six percent of $245,000), even though people at other companies may be able to contribute up to $16,500.
There's good news for people over 50 years old.
They can make "catch-up" contributions of $5,500 (in 2009) over and above the other federal limits.
The Second Maximum Pre-Tax 401k Contribution Limit May Be From Your Company
So far we've been talking about the federal government's limits. The federal government dislikes plans that are used by highly paid executives and not by rank-and-file employees, so some companies limit the maximum percentage that employees can contribute. Check with your company to see if that limit applies to you.
401k Tip: To update this information in future years, go to www.IRS.gov and search for the following phrase: IRC 401(k) Plans - Operating a 401(k) Plan
If you would like to get the complete picture on Maximum Pre-Tax 401k Contributions and more, check out the book, "The ABCs of your 401k" by Dr. Bill Conerly.
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