Contribution Limits on Retirement Plans
Saving for retirement can be an endeavor that includes multiple ways to set aside funds. From individual retirement arrangements (IRAs) to 401K plans, you'll need to find the best way to contribute your income so it will be available when you retire. The federal government has a maximum contribution limit for each plan subject to change annually. Past rates can give you a ballpark figure, but for current limits check with a tax professional or the IRS.
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IRA
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An IRA allows you to set aside tax-free or tax-deferred funds for use during your retirement. There are a few types of arrangements falling under this category, but most individuals have either a traditional or a Roth IRA. For 2009, the IRS reported a maximum contribution to a traditional or Roth IRA as the lesser amount of $5,000 or the amount of your taxable compensation for the year if you were under at the end of 2009. You could split the contribution between a traditional IRA and a Roth IRA for a combined limit of $5,000.
If you were 50 or older at the end of 2009, you could contribute up to $6,000 or, if that was more than you earned during the year, the amount of your taxable compensation for the year. In both cases, your modified adjusted gross income could reduce the maximum amount according to the IRS Regulatory Code.
401K
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A 401K is an alternative way for you to save for retirement. It works by allowing you to invest a set portion of your paycheck into a 401K account on a pretax basis. In many cases, your employer may match your contribution up to a specific contribution limit. For 2009, the contribution limit was $16,500 for individuals under 50 and $22,000 for those older than 50 as of December 31, 2009. According to Bankrate, the 401K contribution limit for 2010 was the same as it was for 2009.
457b
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A 457b plan is similar to a 401K, but it is an account a tax-exempt organization such as a state university or government department offers its employees. You make contributions into it the same way you would with most retirement plans. The 457b contribution limit for 2009 allowed you to place the lesser amount of $16,500 or 100% of your salary. Individuals over 50 before the end of 2009 could make catchup payments, allowing them to contribute an additional $5,500.
TSA
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A tax-sheltered annuity (TSA), also known as a 403b plan, is an account available to an employee of a public school district, a church or another tax-exempt organization. It's similar to a 401K plan and a 457b plan, including being subject to regulatory caps. In the case of a TSA, you need to know two contribution limits: the elective deferral limit and the annual additions limit. The elective deferral is the regulatory cap for the amount an employer can contribute to the fund and was $16,500 for 2010. The annual addition limit is amount an employee can contribute to the plan each year with the company matching the contribution. For 2010, it was the lesser amount of $49,000 or the entire includable income. People over 50 could contribute an additional $5,500 under the IRS catchup provisions.
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