The amount that you are legally permitted to contribute into your 401K account varies from one year to another, depending on the standard of living rates for the previous year. These rates are released by the IRS in mid-October every year. The standard of living is very important because it will ultimately determine your 401K maximum contribution guidelines for the following year.
The maximum amount is a combined total for all of your 401K accounts, including any Roth 401K accounts you may have. Therefore, you cannot open additional accounts and put this same amount into each of them. The combined total cannot exceed the maximum rate for the year.
You must consider the maximum contribution amount as stated by your employer’s plan as well as the maximum rate given by the IRS when determining how much you can legally contribute.
You will be allowed to contribute up to the lower figure of these two.
For 2009, the max contribution is up over a thousand dollars from the previous year. It is currently at $16, 500 and that is based on the new figures for the standard of living in the country.
The maximum contribution guidelines from your employer will be in the form of a percentage of your salary. For instance, if you earn $65,000 a year and are allowed to contribute up to 15% of that salary according to the plan your employer has set up for you, then you would have a maximum contribution of $9,750.
Obviously, $4, 500 is the lower figure between the employer limit and the federal limit, so this person would only be allowed to contribute this amount in all of their accounts combined for 2009.
$16,500 a year would be the ceiling mainly for people who earn a larger salary every year. If you earn less than $100, 000 a year in salary then chances are you will have to go with the percentage of your salary as given by your employer.
Yet, there is an extra catch-up contribution allowed for contributors aged 50 or over. For 2009 this figure is an extra $5,500. Again, this is to be spread amongst all of your 401K accounts if you have more than one. Not every employer allows the catch-up contributions, so you must ask if you want to take advantage of the extra contribution.
These 401K maximum contribution guidelines do not concern any money that your employer may be adding to your account. Most employers will match the amount you contribute at least partly, and that amount is not included toward your maximum contribution amounts.
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