How Much Can I Contribute to My 401K Plan at Work?

A 401(k) plan allows you to invest some of your wages in a retirement account without having to pay taxes on those wages or on any investment gains until you retire. However, you can't contribute an unlimited amount to a 401(k).

Limit

The IRS limits how much you can contribute each year. In 2009 and 2010, for example, the limit was $16,500. Tax law provides for the limit to increase with inflation.

"Catch-Up"

If you are over 50, the IRS allows you to chip in a little more each year. These are known as "catch-up" contributions. In 2009 and 2010, they were limited to $5,500 per year; the catch-up limit also increases with inflation.

Matches

Employers frequently match their workers' 401(k) contributions, either dollar-for-dollar or in a ratio such as a $1 match for every $2 a worker contributes. Matching contributions made by your employer do not count toward the IRS limit.

Consideration

Individual plans are allowed to set limits lower than the IRS maximum.

Warning

The IRS limit covers all 401(k) plans in which you participate. If you have two employers and two 401(k) plans, then your total combined annual contributions, and catch-up contributions, cannot exceed the limit.

References

• IRS: Limitation on Elective Deferrals
• Today's Seniors: 401(k) Limits
• Wall Street Journal: What Is a 401(k)?