401k Contributions: Knowing Your Limits

Knowing your 401k contribution limits is essential to contributing properly to your retirement account. Your 401k is a valuable resource that can help you save tax-free for retirement. However, the government sets a maximum limit that you can contribute each year. In addition to the government limits, you should decide on your own personal limit. Here are a few factors to consider before you start contributing.

Employer and Federal Limits

With your 401k, there are two limits that you have to be aware of. First, your employer sets a limit that applies only to your company. If their limit was 10% and you made $50,000 per year, you would be able to contribute $5000 at the most. On top of that, there is also a federal limit that goes up periodically. Let's say that the federal limit was $16,500. Then you cannot submit more than that amount in any given year for all of your accounts. You will always have to abide by the lower limit of the two. In this case, you would still only be able to contribute $5000.

Personal Limits

Besides the official rules, you need to set your own rules. Knowing how much you can afford to contribute is essential to picking the right amount to be deducted from your check. Make sure to not overdo it when it comes to contributing to your 401k.

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