401k
401k Information

401k Maximum

A 401K is a retirement plan sponsored by your employer. It is a defined contribution plan where you contribute a certain portion of your income into the account. 401K accounts are popular because of two main reasons.

As a retirement investment, the 401K has both advantages and disadvantages:

Pros:

  • Tax deferred until withdrawal.
  • Possibility of additional contributions from employers

Cons:

  • Withdrawal penalties of 10% with certain exceptions.
  • Lack of liquidity if the contributor needs the money for another purpose.

A further comparison of a 401K plan with other investments can be found here.

Benefits of a 401K

First they are a tax deferred plan, as an example let’s say you put ,000 dollars into the account over a year and earned ,000 that year, only ,000 would have to be claimed as income. On the other hand, the benefits upon withdrawal once you’ve retired are taxed as income. Second, employers may offer a matching contribution giving you a strong incentive to deposit into the 401K account because of the increase in assets gained if employers match the deposit.

The tax deferment option can be advantageous because retirees generally require fewer expenses than during their career so can live off of a smaller yearly income. This drives them to a lower tax bracket so they have to pay less on the withdrawals from their 401K than they would have paid during their working years.

Although a 401K is an employer provided benefit, if you were to change employers and your new employer has a 401K plan, you can transfer your old 401K plan to the new employer. If your new employer does not offer a 401K plan, it can be transferred to an IRA at another institution or the old employer may charge a fee to keep the 401K managed through them.

The money deposited in a 401K is distributed among a variety of assets that could include stocks, bonds, mutual funds, money market funds and others. The options available are based on the specific plan your employer allows and the proportion of funds in each can be regulated by the contributor manually.

Deposit Limits

401K contributions are limited to a maximum of ,500 a year in 2009. People age 50 or older are allowed an exception to this limit in the form of acatch-upa contributions. These catch up contributions are limited to ,500 in 2009. These limits are also imposed if more than one 401K (such as a traditional and Roth) are owned by the same person, there can be no more than ,500 contributed to both accounts combined. These limits are set by the IRS and can differ from the limits set by your employer’s plan which may limit it based on a % of yearly income.

Withdrawing Funds from a 401K

The current age requirement to begin withdrawing funds from a 401K is set at 59 . At this point withdrawals can freely be made with no penalty, but an income tax must still be paid. If withdrawals are made before this point, there is a 10% tax added on to the income tax for the withdrawal.

There are a few exceptions to this rule. Some plans may allow the employee to take a loan out from their 401K plan. Loan conditions can vary greatly based on individual plans offered by employers but won’t exceed 5 years and will be a reasonable income rate. The income is then paid back and added to the 401K account but does not get the tax deferred treatment that regular deposits get.

In addition to the available loan, 401K plans will not suffer the 10% withdrawal fee if the contributor dies, is disabled or cannot work any longer. If upon leaving the employer which holds the plan, the employee cannot find another plan to transfer the funds to such as an IRA or a new 401K, the funds can be distributed without penalty.

Types of 401K plans

All of the above information was in reference to a traditional 401K plan, the following is a list of non-traditional 401K plans available and how they differ from the traditional plan.

Roth 401K

A Roth 401K differs from a traditional 401K primarily in that it is does not have a tax-deferred contribution. This means that an income tax is paid on all income before the contribution is made but at the time of withdrawal, no income tax is paid. There are additional restrictions associated with a Roth 401K. The ,500 limit is imposed on a combination of traditional and Roth 401K that an employee may have so they cannot invest ,500 in two separate accounts.

SIMPLE 401K

This is a type of 401K plan available to companies with 100 or fewer employees. The employees eligible must have received at least ,000 in pay from the company in the last year. Traditional 401K plans have a requirement for the employer to test whether the higher compensated employees in the company are being treated as equally as lower paid employees. The SIMPLE 401K eliminates those testing requirements so allows small businesses to provide retirement benefits to their employees without high costs. One difference is that the SIMPLE 401K has a lower limit of ,500 contribution per year in contrast to the ,400 limit in a traditional 401K.

401K plans are popular among employees and are the major source of retirement income for 44% of all workers. It is important when planning for retirement to understand the different options available and fitting them to your personal preferences. You can read more about how a 401K fits into saving for retirement and retirement investing

Frequently Asked Questions

  1. QUESTION:
    Can you contribute to the maximum on both Roth IRA and Roth 401k if your income is under the limit?
    I know that I can contribute to both Roth IRA and regular 401k to the maximum if my income is under the limit. However, as more and more companies offer Roth 401K, I am not sure if I can contribute to the maximum in Roth IRA when I am already contributing to the yearly maximum in my Roth 401K.

    • ANSWER:
      Absolutely you can max out both. In fact, you should if you can.

      However, I wouldn’t do it quite this way unless you’re in a pretty low tax bracket. If you’re in the 25% bracket or higher, you might consider maxing the Roth IRA, but going with the traditional 401k instead.

      This is something called “tax diversification”. It protects against changes in the tax law in the future. As an extreme example, what if income tax gets completely replaced by sales tax? The tax free withdrawals from your Roth IRA would be pointless, but at least your regular 401k would have enjoyed an upfront tax benefit.

      Like I said, that’s an extreme example, and tax diversification is a long discussion for another day. Whichever your pick, if you max out both, you’re way ahead of your peers. Go for it!

  2. QUESTION:
    Should I contribute more than the maximum matched on my 401k or put it in a Roth IRA?
    Lets say my company matches up to 8% on my 401k and I’ve contributed the maximum. With my extra funds should I continue to add more money (say to 105) to the 401k or use that instead for a Roth IRA (mutual funds, bonds). Why or why not? Thanks.

    • ANSWER:
      it depends.

      You can pick your ROTH IRA. Many 401K’s are really good… but the majority are mediocre or poor.

      READ: Mutual Funds For Dummies
      Stay away from banks & insurance companies for retirement products.

  3. QUESTION:
    Does the employer match count towards the 401K maximum pre-tax contribution per year?

    • ANSWER:
      No, it does not.

  4. QUESTION:
    What is the maximum yearly contribution to 401k plans?
    The limit for a Traditional 401k is ,500/year, and the limit for a ROTH 401k is 00/year. However, this year I put 00 in my Traditional, and 00 in my ROTH 401K, and Turbotax says I am over my legal limit. There seems to be a conflict in the tax code, so I must be misunderstanding something. Even my payroller and retirement account company are confused.

    • ANSWER:
      you are entering in your 3000 into Turbo Tax and you shouldn’t. The 401k deduction is already accounted for in your net income. If you look at your w-2 you’ll see that the social security income is at least ,000 higher than the taxable amount. The difference is your 3k traditional 401k contribution.

      Little confused when you say k limit for Roth 401k. That’s not true…the k limit is for all IRA’s not 401k’s. The limit for 401k’s is .5k and can be split any way between ROTH and Traditional. Either way it’s all accounted for in the w-2 and shouldn’t be entered into TurboTax at all.

  5. QUESTION:
    Is there a maximum in a 401k account?
    I just wanted to know if there’s a restriction to how much money you are able to have in a 401k account. Thank you for your time and answers :)

    • ANSWER:
      You can only CONTRIBUTE about ,500 per year…however there is no maximum BALANCE that you can have.

  6. QUESTION:
    What is the maximum I can contribute to 401k?
    In tax year 2006, Since I am over 50 years old, I contributed ,000 to a traditional IRA because I wanted to reduce my taxable income. My 401k contributions brought my income just a little over ,000 so I was able to reduce my income by most of ,000. Is there a limiy as to how much I can have my employer deposit into my 401k account? My income will increase a little and want to be able to contribute more so that my 2007 taxes can be reduced by a ,000 traditional IRA contribution.

    • ANSWER:
      Since you are covered by a qualified retirement plan at work and have income of over k, not all of the IRA contribution is deductible if you are a single taxpayer. If your gross income exceeded k, none of it was deductible.

      The maximum 401(k) contribution is the lesser of the amount your employer allows or the government guidelines — ,000 for 2006 and indexed for inflation for 2007 and later years. An employer match of up to 6% of your pre-tax salary is permitted above those amounts but again is NOT mandatory.

      (The law also provides for catch-up contributions for over-50s but your employer does NOT have to allow those contributions)

  7. QUESTION:
    Does the amount your employer puts into your 401k or TSP count towards the maximum limit?
    I would like to put the maximum allowed into my TSP which is ,500. Does the amount my employer matches go towards that amount or is it in addition to it? I don’t want to over fund my account so I would like a definite answer to this question. Thanks.
    My employer allows us to contribute the IRS limit of ,500 so no assumption there.

    • ANSWER:
      The limit for you is 15% of your salary.
      The limit on the account is 25% of your salary.
      The employer match is out of the other 10%.

      (Speaking as someone who hit the 25% one year….)

  8. QUESTION:
    I am 27 and a long way from retirement should I continue putting the maximum in my 401K?
    Whith the crisis and all?

    • ANSWER:
      You should continue putting the same percentage of your income into your 401k plan. Even if the stock market keeps going down for the next couple of years, you will likely come out ahead in the long run. The technique of putting the same amount of money into an investment in regular intervals is called dollar cost averaging. If you want to know more about this technique, follow the links listed below. In any case, there is a very good chance that the market will rebound before you retire.

  9. QUESTION:
    401k plan – reaching maximum investment?
    I’m close to reaching my 401K maximum investment of , 500 for the year. Afterwards, I can invest post tax money into my 401K. Does is make sense to decrease my pre-tax investment from 30% per pay check so that I continue investing with pre-tax dollars or should I max out the 401K plan and invest 30% post tax?

    Thanks.

    • ANSWER:
      First of all, congratulations on investing 30% of your income! That’s awesome and you’re really going to be happy that you did so.

      I’d cut back to the percentage that gets you to ,500 with your final paycheck of the year (don’t get there early — you might not get all your employer match if you do!). Then set up a Roth IRA as a place for the extra, up to another 00 per year (and both numbers will continue to go up, so you’ll have to do this percentage-calculation each year).

      The reason is simple: if you put the extra into your 401k, then you pay taxes before the money goes in and pay taxes on the profits when the money comes out. However, if you put it into a Roth, you pay the same taxes before the money goes in, but *no* taxes when the money comes out. It’s that simple.

      Once you fill up your 401k contribution *and* your Roth contribution, I’d start thinking about investment vehicles that aren’t deferred, such as regular Vanguard funds. If you’re investing 30% of your income, then you’re probably not going to need to wait until you’re 59.5 to retire. You’re going to want some money to live on between when you retire and when you turn 59.5 and can get to the 401k and Roth without penalty (you can get some of the money early — research IRS code 72(t) for details on that — but it’s not a whole lot).

      Again, congratulations and good luck!

      Doug

  10. QUESTION:
    Researching 401K rollover to IRA — IRA info mentions maximum annual contributions. Do I have to contribute?
    My 401K is substantial, was employed for 12 years. Do I have to make annual contributions to a new IRA, once my rollover is established? Can’t the IRA act like a savings account? Is there a minimum contribution amount? I know the max is based on adjusted gross income.

    • ANSWER:
      You don’t have to make any contributions to an IRA. You can make contributions each year as long as you have earned income. If you are going to rollover your 401k to an IRA you should be all set as long as you don’t work at the company anymore.

      Good luck and happy investing.

  11. QUESTION:
    Where can I find a list of the maximum allowable donations to 401k plans from the year of their inception?

    These would be employee donations each year beginning in the 70′s. Thanks

    • ANSWER:

  12. QUESTION:
    Can a person make maximum contributions to a simple IRA and a 401k in the same year?
    The person works for two employers, one has a 401k, the other has a simple IRA.

    • ANSWER:
      There is a maximum you can contribute to your 401(k) and a maximum you can contribute to an IRA. The two have separate limits and one does not affect the other.

      Also, if you are contributing to a 401(k) it is generally a good idea to contribute to a Roth IRA as opposed to a traditional IRA unless you need the immediate tax write off.

  13. QUESTION:
    What is there a maximum amount I can contributed to both my Roth IRA and 401k?
    For 2007 I contributed ,000 in my Roth IRA and ,500 in my 401k. Did I exceed the Maxium amount?
    Is there a combined amount that one can contribute to the plans? Or are they seperate?

    • ANSWER:
      You’re fine, you hit the max on both. For 2008 you can put 00 in the Roth.

  14. QUESTION:
    What is the maximum amount for 401k contribution for 2009?

    • ANSWER:
      ,500 according to the IRS.

      http://www.irs.gov/retirement/participant/article/0,,id=151786,00.html

  15. QUESTION:
    i don’t have the option of a 401k but i invest the maximum into my Roth IRA. What else can i do?
    I’m a little shakey when it comes to investing into stocks and such on my own, so suggestions other than “buy stock” would be welcome. Should i just go head first into a mutual fund? buy T-Bills or something?lol i really have no clue where to go from here.

    • ANSWER:
      Depends on your risk tolerance: over the long haul, investing in equity mutual funds is usually the best plan, but you have to be able to ride out the inevitable declines as well as the advances in the basket of stocks. If you’re worried about taxes on your ordinary (non qualified) investments, you might look into variable annuities which shelter the growth from taxation until you draw on them for income. T-bills and cash instruments only pay 4-5%, while equity investments over time return about 10%/year on average.

  16. QUESTION:
    can I make a maximum contribution to my 401K to reduce my tax liability for 2010 now?
    I just lost my job, and they paid me a lump sum severance pay, I would like to Max out on 401K limit for 2010 to reduce tax for 2010
    Thanks for your answer

    • ANSWER:
      If you are no longer employed, you won’t be able to add to that employer’s 401k plan. Roll the 401k over to an IRA and add the max contribution for an IRA.

  17. QUESTION:
    Maximum 401K Contribution of .5K include company match? or just personal contribution?
    Does the maximum 401K contribution amount of ,500 apply only to my personal contribution or does it include what my company contributed (matched)? I’ve contributed about ,000 so far this year. My company matched and contributed an additional ,600. Does the total of ,600 mean I’m over limit by 100? or can I still contribute another ,500 in addition to my ,000?

    • ANSWER:
      Just your personal contribution the company can contribute as much as they want.

  18. QUESTION:
    What was the maximum 401k contribution in 1996?

    • ANSWER:
      I don’t know, but the link below tells you how the IRS might be able to help.

  19. QUESTION:
    What is the maximum you can put in your 401K for 2008?
    I know it is ,000 for 2007. Has the IRS said how much it will be for 2008?

    • ANSWER:
      Actually, it’s ,500 for 2007 and ,000 for 2008.

      Doug

  20. QUESTION:
    Does that maximum of ,500 401K amount go up every year?
    Also, If a person makes ,000 a year, can they really put ,500 away a year in a 401K?

    • ANSWER:
      While the max on the 401K is 500, there is ALSO a percentage limit. The amount you can contribute is the lesser oft he 2. For most people, that’s 15% of their pay.

      The individual can ALSO put 00 into an IRA.

      So for your hypothetical K salary, 00 max through work and 00 from the IRA is possible.

  21. QUESTION:
    Does Solo 401k or Self-Directed 401k include matching? If so what is the maximum amount of money matched?
    How do I open a self directed 401k myself without all the fees from finance firms.
    Along with a solo 401k and I add SEP-IRA , SImple IRA and Keogn plans?

    • ANSWER:

  22. QUESTION:
    what’s is the maximum annual contribution an employer can give to its employee (401k, pensions, annuity)?
    I know that for 2010 the maximum amount of money an employee can contribute to his/her 401k is ,500, but is there a limit as to what the employer can contribute in an employee’s 401k and any other pre-tax contributions like pension funds, annuities..etc.

    • ANSWER:

  23. QUESTION:
    401K, I’m putting the max the company matches – should I put the maximum allowable even if no match?
    Why or why not?
    No credit card debt – no outstanding loans.
    Saving for the kids college in check.

    • ANSWER:
      I’ll go with a combination of jlf & what’s answers (above) – after you max out your company match (definitely do that – it’s free money!), fund a Roth IRA. Two great reasons – (1) you have complete freedom to invest that in whatever fund(s) you wish, and (2) you will never have to pay taxes on the earnings (as long as you don’t make any early withdrawals).

      Two things you may need to watch out for (I don’t know your exact circumstances) – the maximum annual contribution for a Roth is ,000 (,000 if you are 50 or older). Also, there are income restrictions. If you make over 5K (single) or 6K (joint) you may not make the full contribution. You may be able to make a partial contribution (there is a phase-out provision – see IRS Pub. 590 below).

      If you can make the max Roth contribution and still have money available, you should then max out your 401(k). You can contribute up to ,500 annually to that.

      I’m not a big fan of paying down your mortgage right away, since you generally get a tax break with that interest; do this only if you can max out your Roth AND 401(k) contributions.

      I hope that helps. Good luck!

  24. QUESTION:
    What’s the maximum someone can pay into a 401k plan in 2005 including company match? k or more?
    My company matches a portion of my proceeds and I just went over the k mark for the year. My question is, can my TOTAL contributions exceed k as long as my personal contribution is limited to k and the excess is from company matching funds? If yes, what’s the limit on the TOTAL contrib including personal and company matching funds? k?

    • ANSWER:
      Your personal limit is 15K in 2006, which company matching is extra. Meaning 15k+company matching.

      43k limit is for self employ

  25. QUESTION:
    What is the employees (under 50) maximum 401k contributions?
    An employer offers maximum 3% of the employees 6% of matching 401k contributions. What are the total 401k contributions in 2010 for an employee under 50? Is it ,500 or more? In addition, can an employee open an additional bank IRA account if s/he has already made the 401k contribution limit by participation of the employer’s 401k?
    If one has already contributed ,500 to his traditional 401k in 2010, can he open a different Roth account to contribute additional ,500?

    • ANSWER:

  26. QUESTION:
    What is the maximum percentage that I can contribute to a 401k and not pay taxes on (this year)?

    • ANSWER:
      The IRS does not stipulate a maximum percentage. They only have a maximum amount. For 2007, that amount is ,500. If you turn 50 in 2007 or earlier, then you can put an additional ,000 into your 401k.

      Each employer has different rules for their plans. Some will let you put only so much (as a percent) into their 401k. For some employers, that percent depends on if you are a regular employee or a “highly-compensated” employee.

      Any amounts your employer puts into your 401k (employer matching) does NOT go against your limit.

      Example: Your salary is 0,000. You put 10% into your 401k. Your employer matches 100% on the first 8%. Your contribution to your 401k is ,000 (below the IRS limit) and your employer contribution is ,000 for a total contribution of ,000.

      Believe it or not, I actually worked for a company that allowed people to put 90% of their salary into their 401k. Companies automatically stop your contributions once you hit the ,500 (or ,500) limit.

      Caution: If you work for more than one company in the same year, you could accidentally overcontribute to your 401k since the employers don’t know about the contributions you made to the other employer’s plan. If you do overcontribute, the IRS will make you pull out the overage plus gains (interest). You will be taxed and penalized (10%) on the amount you have to pull out.

      Finally, any contributions to a 401k can be either pre or post tax. For the vast majority of Americans, it makes no sense to put post-tax money into your 401k since you don’t save taxes in the year of contribution.

  27. QUESTION:
    What is the maximum amount of time an employer can make an employee wait to start contributing to the 401K?

    • ANSWER:
      401K is a benefit, just like paid vacation, and sick leave. You need to read your company’s policies. What ever they have written down on their policy booklet, is what they’re legally obligated to abide by. If the policy is 30 days, then its 30 days from your date of hire. You also need to check if its different for certain positions. It may be 30 days for people in management, but 6 months for others who are not in management.

      Taximom above me must have different laws in her state. In my state (California), companies are allowed to have different benefit packages. I used to be a trucker, and the trucking company I drove for required 5 years to be fully vested on their 401K, while clerical and others only had to be with the company 1 year to be fully vested.

  28. QUESTION:
    Are you able to put in the maximum amount of $ per year into a 401k AND a 403(b)?
    I work at a financial/ tax office and we have conflicting answers. We were sure it would be yes because a 401k is an employer owned plan and a 403b is an individually owned plan, but then we heard a conflicting report.
    I know you can max out a 457 and a 403(b).
    Please help and sight your source if you can!
    Thanks in advance!

    • ANSWER:
      The contribution limit must be coordinated between a 403b and a 401k.

  29. QUESTION:
    Does the 401k maximum (2006 – ,000) include company matched money?
    For example, I contribute ,000 of my own money – the company matches X%. My total 2006 contribution is ,000 + the company match. Although this is greater than ,000 – have I exceeded the limit?

    • ANSWER:
      Employer contributions (matches, profit sharing) do not reduce the amount of employee money (salary deferrals) that you may contribute in a given year. The ,000 limit applies solely to your salary deferrals.

      Both employee and employer contribtuions count against the maximum total contribution you can receive in a given year. So salary deferrals could potentially reduce the amount employer money that you receive. This however would require a very generous boss.

  30. QUESTION:
    What is the maximum amount I can contribute to my 401K for 2007 and 2008?

    • ANSWER:
      The annual maximum for 2007 is ,500. If you are over 50, a “catch-up” provision allows you to contribute an additional ,000 into your 401(k) account. It is also important to note that employer contributions do not affect an employee’s maximum annual contribution limit.

      It is important to note that some employees are subject to another form of contribution limitations. Employees classified as “Highly Compensated” may be subject to contribution limits based on their employer’s overall 401(k) participation. If you expect your salary to be above 0,000, you may need to contact your employer to see if these additional contribution limits apply to you.
      2008 401k Contribution Limit: ,000
      2007 Catch-Up Contribution Limit (only for those over 50 years old): ,000

      These are the IRS limits, but you are also subject to the limits imposed by your company’s 401k plan

  31. QUESTION:
    What is the maximum amount of money I can contribute to my 401K this year?

    • ANSWER:
      2007 401k Contribution Limit: ,500
      2007 Catch-Up Contribution Limit (only for those over 50 years old): ,000

  32. QUESTION:
    What is the maximum amount that an employee and employer can contribute to the 401k (combined or separately)?

    • ANSWER:
      30K.

      15k for employee

      15k match from the employer.

  33. QUESTION:
    Can I contribute to my traditional IRA for the maximum/over 50 if I did not meet that amount with my 2007 401k

    • ANSWER:
      IRA and 401(k) contributions have no affect on each other. You can always make the max contribution in either or both so long as you meet the specific requirements for both (as in income limitations, contribution limitations).

  34. QUESTION:
    Is it possible that a Roth IRA is better than a 401K? Assume a maximum annual contribution.?

    • ANSWER:
      A 401K with the match is better than a Roth.
      And a Roth is better than an unmatched 401K.

  35. QUESTION:
    what is the maximum 401k contribution for 2006?

    • ANSWER:
      ,000. There is a catch-up provision of ,000 bringing the maximum to ,000 if you are over 50 years of age.

  36. QUESTION:
    401k & Simple IRA Maximum-Poss catch-up contribution?
    My wife & I own a small retail business with one employee & we have a simple IRA plan. My primary job is with another employer with a 401k plan & I have maxed out that contribution for 08 @ 15,500, I am over 50 but did not withhold any catch up contributions. My understanding is that this must be done with salary reduction so it is too late for 08 with the 401K. Since I have reached my maximum IRS allowable deferral amount I don’t think I can contribute to the simple IRA as a regular contribution. I did notice the simple allows 2500 for a catch-up, could I designate a 2500 contribution to the simple IRA as a catch-up & get the income reduction?

    • ANSWER:

  37. QUESTION:
    what is overal maximum for 401k and sep?

    • ANSWER:
      401k employee deferrals maximum for 2009 = 16,500
      2009 total defined contribution limit = 49,000
      SEP contribution limit = 49,000.

      However, SEP contribution is a percentage of compensation limit and thus if you contribute 20% to yourself then you have to contribute 20% to all other eligible employees. 401k defined contribution limit is combination of employee contributed money and employer contributed monies and there are formulas that can allow as little as 5% employer contribution limits that allow the owner of a company to receive the full 49,000 contribution.

  38. QUESTION:
    What is the maximum $$$$ one can put into a 401K account this year?

    • ANSWER:
      Contribution Limits

      Total employer and employee contributions to all of an employer’s plans are subject to an overall annual limitation – the lesser of:

      * 100 percent of the employee’s compensation, or
      * ,000 in 2006 (,000 in 2007).

      In addition, the amount employees can contribute before taxes under a traditional or safe harbor 401(k) plan is limited to ,000 for 2006 and ,500 for 2007.

      Traditional and safe harbor 401(k) plans can allow the following additional catch-up contributions for employees aged 50 and over:

      * 2006 – ,000
      * 2007 – ,000

  39. QUESTION:
    What is the maximum time an employer can hold your 401K deduction, before putting it into your investment acct

    • ANSWER:
      I am not sure of the exact answer to your question. The link below is for the Government organization that enforces the laws regarding employee benefits. You can call the 800 number or send them an email and they can answer your questions.

      http://www.dol.gov/ebsa/

      Good luck.

  40. QUESTION:
    Are contributions to 401k prorated from the time you start work?
    I have two questions about my employer retirement 401k contributions.
    1. The maximum I can put in is ,500 for 2007. But I started in mid year. Is it prorated from the time I started? Example: I started on July 1, is the contribution ,500/2 = ,750.
    2. My employer matching is 2:1 up to a maximum of 6% of salary. Example: ,000 annual salary, employer contribution is ,000. For every dollar I put in, they will put in [FAQ-QUESTION].50. Is the employer matching of ,000 included in the ,500 which means the employee total amount invested is ,500, or, is it ,500 from employee plus ,000 from employer which would equal ,500. I think it’s the former but just want to check.
    Thanks….

    • ANSWER:
      part1) No it is not prorated. The annual limit remains 15,500. The only restriction is how much can you aford to put in per week. Also, the plan needs to be a qualified’ plan. To do that your company must maintain a ratio of contributions between ‘highly compensated employees’ and all other employees. This MAY result in a maximum percentage that yur employer allows you to contribute each week, and that maximum percentage MAY prevent you from maxing out.

      If you are over 50 you are allowed an additional separate 5000 ‘catch up’ contribution.

      Part 2) No, the employer portion does not count toward your maximum. You can contribute 15,500 and your employer an additional amount.

  41. QUESTION:
    Can you participate in two 401k plans at the same time?
    I have a full time job where I participate in a 401K and contribute the maximum amount. I also work part time in my wife’s sole proprietorship, but dont draw a salary. Can I sign up in the retirement plan in her company, get a salary, and contribute there too. If so, what are the limits, and is the financial advantage of this tax deferral offset by the higher social security tax that has to be paid on my income? Her SS tax is maxed out, so that her extra profit because of my zero salary does not create an extra SS contribution.

    • ANSWER:
      Yes, you can do that, and you have identified the pitfalls.

  42. QUESTION:
    what is the maximum contribution limit for 401K plan?

    • ANSWER:
      in 2006 – ,000/year. If you’re 50 or older, you can add an additional ,000 in catch-up contributions.

      Contributions are usually limited to a percentage of our salary. I’ve had a max of 16%, but the current employer allows up to 75%, which would only be useful for someone starting late in the year, and wishing to catch up if a 401K hadn’t been available earlier.

      Soon the limit will change based upon inflation, and arounded to the nearest 0, I think.

      There is no ,000 limit that I know of, which was mentioned above, but Roth IRAs have such limits on them.

  43. QUESTION:
    If you contrubute to a 401k can you also put the maximum into a traditional ira acct without any penalty?

    • ANSWER:
      YES – you have to be working of course to qualify for the ,500 max in 401(k)’s this year. You can also contribute ,000 to the IRA on top of that.

  44. QUESTION:
    if i contributed maximum amount in 401k account, can I still contribute in Roth IRA ACCOUNT? iF YES, HOW MUCH?
    RETIREMENT

    • ANSWER:

  45. QUESTION:
    I underfunded my 401K by ,500. Should I contribute the maximum (,000) to my IRA?
    Would this help me make up for the deficit? I don’t think I benefit from a tax standpoint.

    • ANSWER:
      If your MAGI is less than 0K, you can contribute at least some of that amount to a Roth which is a better choice than a traditional IRA. Since you have a retirement plan through your employer, you probably won’t be able to deduct the t-IRA contribution as your income would have to be below certain limits.

  46. QUESTION:
    What do I need to know before enrolling to a 401k plan?
    I am 26 years old making ~ a year. My company offers a 401k plan and matches a maximum of a week. Should I enroll to the 401k? What are the risks/benefits? What type of plan is best for my situation? Am I enrolling too soon?

    Any information would be appreciated. Thanks in advance!

    • ANSWER:
      It’s NEVER too soon to start saving for retirement – the sooner you start, the easier it will be to achieve your goals (even if you don’t know what those goals are right now). Start out investing as much as you can, whether it’s 3% of your income or 10%. Just know that you’ll have to do without this money until retirement (there are sometimes loans available, but that is almost always a bad idea). Your ultimate goal should be around 15-20% of your total income, but don’t worry if you can’t do that much right now (most people can’t) – just do whatever you can, and remember to increase that percentage each and every time you get a raise.

      As far as what to invest in, most 401k’s offer “Target Date” funds – you would choose the fund closest to your estimated retirement date (in your case, probably 2040 or 2050), and it will automatically become more conservative as you approach retirement. If your plan does not have target date funds, then go with an S&P 500 Index fund.

      Once you are all set up, I would recommend heading down to your local book store or library, and picking up one or two books on the basics of investing/retirement planning. This stuff isn’t all that complicated, but it is VERY important to know. Once you learn more about the different options available to you, you can tweak your investing strategy based on your personal preferences.

      I hope that helps. Good luck!

  47. QUESTION:
    Can I contribute to individual roth ira and 401k roth ira at the same time ?
    I’ve contributed the maximum allowed for the 401k roth ira (500). Can I contribute another (00-00?) to an individual roth ira account? Or any other individual ira account in the same year?

    • ANSWER:
      The short answer is yes, you can still contribute to individual Roth and Traditional IRAs. However, when you are covered by your employers retirement plan there are limits to how much you can contribute. The limite is dependent on your modified adjusted gross income and your age.

      See IRS document Publication 590, page 14 for explanation. http://www.irs.gov/pub/irs-pdf/p590.pdf

      If you have a spouse who makes less or no income, you may also save money (and reduce your taxes) by opening an IRA for your spouse.

      Best wishes.

  48. QUESTION:
    When should I stop contributing the K IRS limit to my 401k?
    I am 32 years old and have been putting the IRS maximum into my 401k for the past 5 years. I am seeing the market value of the account start to really make gains greater than my contributions (last year the market value grew by K, I put in my 15)
    I am wondering if I should lower my contributions and put that same money into a money market account. I want to retire early and fear my nest egg will be huge, but untouchable until I reach age 59.5.

    Thoughts?
    Nancy,
    I agree with you if I planned to work up to the age at which I can take distributions from the 401k. But I want to retire before this date, and any funds in the 401k will be inaccessible until I reach the IRS mandated age of 59,5. I’ll need some other form of income in that “transition” period between retirement and age 59.5.

    • ANSWER:
      You should keep putting money into your 401(k). For most people, there are two ways to get the money out before the age of 59.5 without having to pay penalties:

      1) You can do72(t) withdrawals (otherwise known as SEPP – Substantially Equal Periodic Payments). These withdrawals are based on your life expectancy and must last for a minimum of 5 years, or until you reach 59.5, whichever is longer – you would probably be best off to get an accountant who is familiar with this withdrawal plan, so you can be sure to avoid penalties.

      2) If you separate from service at the company where you have the 401(k) in the year in which you turn 55 or older, you can start taking withdrawals with no penalties.

      Even if you decide not to put the money into your 401(k) plan, if it was money that you were going to invest in the market in the plan, you should not put it into a money market account. You should open a mutual fund or brokerage account and invest it in something similar to what you were going to invest the 401(k) money in.

  49. QUESTION:
    Is maximum roth plus 401k for 2008 ,500?
    I am 55 so if I see it right, I can put ,500 + 00 catch-up into my 401K and I can contribute 00 plus 00 (over 50) to a ROTH. That all comes to ,500. But I have read that toal contributions to 401k plus roth is ,500. So what is the deal?

    • ANSWER:
      Your first answer is correct provided that your income does not exceed the IRA income limit.

  50. QUESTION:
    How can I withdrawl my funds from my 401k?
    I owe roughly 80k on my credit cards. I’m tired of making payments which will only cover int. I was hoping to pay them off by making a withdrawal from my 401k. I had already taken the maximum allowable loans available. I tried calling to them askedif I could make the maximum allowable withdrawal, but they say paying credit cards is not a hardship. Well if I can’t pay them off, I might have to file for bankruptcy. Any help or advice would be greatly appreciated. Looks like the only way for me to do the withdrawal is if I quit my company.. I can quit my company and pay most of my credit card, but then I’m out of a job????

    • ANSWER:
      If you make the withdrawl, you will pay a penalty (usually about 10% of the total amount) on top of any taxes payable on the principal and interest taxed at ordinary income rates. It’s a tough decision to make because you are losing all that savings and being penalized.

      Can you negotiate with your credit card companies and lenders first to work out a payment plan? Try talking to some debt counselors first before you make this rash decision.

      But be careful many debt counselors may be trying to profit from your problems. I am attaching a link to the FTC website that talks about debt management agencies.

      http://www.ftc.gov/bcp/conline/pubs/credit/fiscal.shtm