2010 IRA and 401k Contribution Limits
Each year, the Internal Revenue Service sets limits on how much money can be added to qualified retirement plans, such as 401k plans or IRA plans. Knowing the 2010 limits will help you to determine if your contributions fell within the maximum allowable range so you know whether you owe penalties on excess contributions.
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IRA Contribution Limits
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For tax year 2010, the IRS set the annual contribution limit for all IRAs at $5,000 for traditional and Roth IRAs combined. The IRS also permits people age 50 and older to be able to make a $1,000 "catch-up" contribution. Therefore, if you are at least 50, you could make a $6,000 contribution in 2010. However, your earned income, such as salaries, must equal or exceed your contribution amount. For example, if you have $2,560 in earned income, your IRA contributions cannot exceed $2,560, even if you have additional unearned income.
401k Plan Limits for Employees
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The IRS restricted the maximum 401k plan contribution for participants to $16,500. Like IRAs, the IRS permits a "catch-up" contribution for people 50 and up. However, the catch-up contribution for 401k plans equals $5,500. Therefore, if you are at least 50, your maximum 401k plan contribution equaled $22,000 for 2010. Also like IRAs, the IRS limits the amount you can contribute to a lower amount if your earned income does not equal your maximum contribution.
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401k Plan Limits for Employers
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Unlike IRAs, the IRS permits your employer to contribute money to your 401k plan, but limits the total amount that can be added to the account each year. Instead of placing a specific dollar amount, the IRS limits the total contributed by the employee and the employer. In 2010, the total of these contributions were not permitted to exceed $49,500. For example, if you put in $11,000 in your 401k plan in 2010, your employer could not contribute more than $38,500.
Misconceptions
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The contribution limits set by the IRS for IRAs and 401k plans do not overlap, meaning that your contributions to a 401k plan do not impact your ability to contribute to an IRA, and vice versa. For example, if you maximize your Roth IRA contribution for the year, your 401k plan contribution limit is unchanged. If you can contribute to a 401k plan, your ability to deduct your traditional IRA may be decreased or destroyed, but you can still make a nondeductible traditional IRA contribution.
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