How to Determine a Maximum 401(k) Contribution

By eHow Personal Finance Editor

Rate: (3 Ratings)

When you're actively planning your retirement, you want to invest as much in your 401(k) plan as you can afford - and as much as the government allows. Here's how to determine your maximum 401(k) contribution.

Instructions

Difficulty: Moderately Challenging

Step1
Find out what limits your employer has placed on your 401(k) contribution. Some employers might not let you contribute more than 10 percent of your salary, especially if they must match your contributions. Get all the details from your human resources department, supervisor or fund manager.
Step2
Check current U.S. government limitations on contributing. The 2008 limit is $16,000 and the 2007 limit is $15,500, but these figures change from year to year. If your salary is $50,000 and your employer has a 401(K) contribution maximum of 10 percent, you can't invest more than $5,000.
Step3
See whether you qualify to make catch-up contributions. If you're 50 or older and didn't contribute the maximum in past years, you might be able to add additional money to your 401(k). The government maximum catch-up contribution varies each year. Not all employers offer catch-up contributions, so check with your fund manager to see whether you can pursue this.
Step4
Factor in matching contributions from your employer. For 2007, the maximum contribution allowed from all sources--including catch-up contributions and employer matching funds--is $45,000 or 100% of your annual salary, whichever is less.

Tips & Warnings

  • Discuss any questions with your human resources department, or call the mutual fund company that manages your 401(k) plan.
  • Even if you've maxed out your 401(k) plan, you can save additional money for retirement by using a traditional IRA or Roth IRA plan.
  • Don't cash out your 401(k) before age 59 1/2. Otherwise you'll face steep tax penalties.

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eHow Article:  How to Determine a Maximum 401(k) Contribution

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