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401k Contribution Limits Explained

The amount you can contribute to your 401k plan are limited first by the government and then by your employer. Since your 401k plan may represent one of the best investments you will ever make, it is of high importance to be familiar with the limitations you have on the contributions you can make.

  1. US Government 401 (k) plan contribution limitations

    The institution responsible for establishing the contribution limits is the IRS (the Internal Revenue Service). Having realized that it is better for the government that the people have more money in their retirement plans, since the need for Social Security is decreased, the government has started to increase the amount up to which the employees can contribute to their 401 (k).

  2. Employer 401 (k) plan contribution limitations

    The maximum percentage of the salary an employee can contribute to his/her 401k is determined by the employer himself. The amount that the employer allows should not exceed the ones required by the IRS. It can be lower, but not greater. For example, you can contribute $2,000 despite the fact that the government has put a higher limit. But you cannot contribute let's say $12,000 since this sum is not within the boundaries allowed by the IRS.

Maximize 401k Contributions

The more you contribute to your retirement account, the greater profits you will receive if the company provides matching. Even if it doesn't provide this service, you will accumulate more money for your retirement years and thus enjoy financially secured old age.

Catch Up 401k Opportunity

You are allowed to increase your contributions up to the maximum amount allowed by the retirement plan, but without exceeding the amount determined by the IRS. This opportunity is offered only for those of you who are above the age of 50.

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