Every year someone asks me how much they can actually contribute to their 401(k). There seems to be a ton of confusion.
Some 401(k) participants seem to think it's a percentage. They are confused by the match percentage. Somehow they have confused that's the max that they should contribute.
Not true, that's the max contribution to get your employers match. I'll list the actual dollar max below.
Others are confused as to how they contribute the extra if they are over 50. Most 401(k) providers recognize your age and the extra contribution limit is up to the individual to make the adjustment online.
This past fall, the IRS announced that adjustments to retirement plans. The adjustments for the 401(k) plan are as follows:
- Elective deferral contribution limit was raised from 17,500 to 18,000
- Employees aged 50 or older can contribute a total of 24,000
- The total contribution limit to a 401(k) by both the employer and employee was raised to 53,000
- The total contribution limit to a 401(k) by both the employer and employee aged 50 or older was raised to 59,000
- The total employee compensation that can be considered for calculation contributions was increased from 260,000 to265,000
- The highly compensated employee definition was raised from115,000 to120,000
The 401(k) is a great option for saving for retirement. Don't pass on it. The money will add up before you know it. Try to max out your contributions, but at least contribute enough to get your employer's full match.
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