Funding Limits for Qualified Retirement Plans
Contributing to qualified retirement plans like 401k plans, 403b plans and IRA accounts provide you with two important benefits. First, they allow you to put money aside for retirement. Second, these qualified plans help you save money on your taxes, giving you an immediate benefit as well as a long-term one.
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401k and 403b Plans
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Workplace retirement plans like 401ks and 403bs provide you with the biggest bang for your retirement savings buck. For 2011, you can contribute $16,500 to your 401k or 403b plan, providing a generous tax savings and a great way to save for retirement. Because every dollar you put into a 401k or 403b plan is deducted from your taxable income, your net income might not decline as much as you think, even if you max out your annual contributions.
IRA Accounts
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The contribution limit for the traditional and the Roth IRA is $5,000 for 2011. You can split the contribution between a traditional and a Roth IRA, putting $2,500 in each plan or any other combination that adds up to the contribution limit. You cannot, however, contribute $5,000 to a traditional IRA and another $5,000 to a Roth IRA.
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Catch-Up Contributions
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Older workers often reach retirement and find that they have not saved enough. To help older workers save more, the IRS allows them to put additional money into workplace retirement plans, like 401ks and 403bs, and IRA accounts. For 2011, workers 50 and older can contribute an extra $5,500 to their 401k or 403b plans, and an extra $1,000 to their IRA accounts.
Employer Contributions
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Any contributions your employer makes to your workplace retirement plans are not counted against the contribution limit. For instance, if your employer contributes 50 cents for every dollar you contribute up to 6 percent of your $40,000 salary, that $1,200 does not count against your $16,500 or $22,000 limit. If you have the ability to do so, you can still contribute the full amount to your 401k, and the employer contribution is an extra bonus.
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