401k Contribution Limits for Your Wealthy Retirement

The 401k plan is probably the most important retirement account that employees have these days. Hence, the 401k contribution limits are a much-discussed topic. In this article I have discussed the 2011 401k contribution limits, as well as projections for 2012.

The changes made recently to the 401k contribution limits have made investors happy, especially those who want to leverage these plans in their portfolio for retirement. The 401k contribution limit has been increasing quickly since 2004, and is projected to grow even more in 2012.

Pre-Tax 2010 401k Contribution Limits
Here is a quick glance at the pre-tax contribution limits illustrated by year. These are set by the IRS:

• 2009 – $16,500
• 2010 – $16,500
• 2011 – $16,500
• 2012 – $17,000

There is also something called a catch up 401k contribution limit. Plan participants who hit 50 years of age before the end of the calendar year can make additional, or catch up, contributions.

• 2009 – $5,500
• 2010 – $5,500
• 2011 – $5,500
• 2012 – $5,500

Employer Contribution Limits

Aside from the 401k contribution limits that you can find in the tax law, employers can also impose limits on 401k plans. The employers’ contribution limit is 6 percent of the pre-tax compensation of the employee. This means that an employee who has a $100,000 compensation package can have a contribution of $17,000 in 2012, and the employer can make an additional contribution of $6,000 to equal $23,000. Then, if you are over 50, you can make yet another contribution of $5,500, which will bring the grand total up to $28,500.

Matching Contributions

Employers also have the option to match the 401k contributions made by employees. In general, the amount an employer will contribute is limited to a certain percentage of the pre-tax contribution made by the employee.

Highly-Compensated Employees

There are also those employees who have to bear with a second contribution limit. “Highly compensated employees” are subjected to additional contribution limits, and this is determined by the employer’s 401k participation rates in general. So, if your 2012 salary is over $115,000, you should probably contact your employer to determine what additional limits will be imposed on you.

Access to Contributions

All contribution earnings are regarded as ‘tax-advantaged’, and the 401k withdrawal guidelines apply to them. However, contributions made with taxed funds are usually fully accessible to the employee since tax deduction has already taken place. There are many complicated rules for the 401k qualified retirement plans, and you should have a copy of all the rules and guidelines that apply to your employer’s case. The document has to outline the rules, as well as the limitations that may apply to you.

For more information on the 401k, go to:
http://www.401k.org/
http://en.wikipedia.org/wiki/401%28k%29

The information supplied in this article is not to be considered as medical advice and is for educational purposes only.