Can I Change a 401k Contribution?
Contributing to a 401k plan can have several benefits. The money you contribute to your 401k plan lowers your taxes, since the contributions come out on a pre-tax basis. It also helps you build long-term wealth for the future, helping you prepare for retirement. If you are not contributing enough to your 401k, you can adjust your withholding to make up for lost time.
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Automatic Escalation
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You may already be changing your 401k contribution each year without even knowing it. Many companies now use automatic escalation to boost 401k contributions each year. If this program is in place where you work, your contribution level goes up automatically each year, either on the first of the year or on your anniversary date. Check with your human resources department to sign up for this program or see if you are already enrolled.
Company Restrictions
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Some companies allow their workers to change their level of 401k contributions whenever they want, while others restrict changes to several times a year. If you want to boost your 401k contribution, first check with your human resources representative. The human resources department can get you the forms you need, or help you make the changes you need via the company Intranet. When you do make changes, they typically take effect with your next pay period.
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Annual Limits
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If you are already close to the annual contribution limit, you may not be able to boost your contribution percentage much more. For 2011, you can contribute up to $16,500 to a 401k plan, plus an extra $5,500 if you are 50 or older. The administrator of the 401k plan automatically keeps track of how much you have contributed. When you reach the limit, your 401k contributions stop for the rest of the year, then resume at your chosen rate when the new year begins.
Company Limits
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Even though the federal government allows you to contribute up to $16,500 or $22,000 to your 401k, the company you work for may have other limits in place. For instance, some firms limit the amount employees can contribute to a 401k to 15 percent of their pay. That can restrict the amount you can put aside, especially if you are a high earner. Your human resources department can give you specific guidance about 401k restrictions.
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