October is an important month if you have one or more 401K investment account. This is the month that the IRS releases the updated standard of living rate. This is the figure which determines how much you will be allowed to contribute to all of your accounts in the next year. This amount and the rules surrounding it are the 401K maximum contribution guidelines.
Once you figure out your maximum contribution limit, remember that this is for all of your open 401K and Roth 401K accounts combined. This means if your maximum turns out to be $ 5, 000, your combined contributions in all accounts cannot go over this amount.
There are two figures that you have to consider when determining how much you are allowed to contribute for 2009: the maximum contribution as stated by your employer’s plan and the maximum amount given by the IRS.
Take the lower figure of these two and you have the maximum amount you can contribute for the year.
For 2009, the maximum amount that anyone can contribute is $ 16,500. That is up $ 1,500 over last year and the change is due to the fluctuations in the standard of living rates across the country.
The maximum contribution guidelines from your employer will be in the form of a percentage of your salary. For instance, if you earn $ 65,000 a year and are allowed to contribute up to 15% of that salary according to the plan your employer has set up for you, then you would have a maximum contribution of $ 9,750.
Obviously, $ 4, 500 is the lower figure between the employer limit and the federal limit, so this person would only be allowed to contribute this amount in all of their accounts combined for 2009.
$ 16,500 a year would be the ceiling mainly for people who earn a larger salary every year. If you earn less than $ 100, 000 a year in salary then chances are you will have to go with the percentage of your salary as given by your employer.
If you are over the age of 50, you have a special allowance that your employer may or may not allow on your plan. It is called the catch-up contribution and is only available to those who are over 50 years old. The amount of this extra contribution is determined every year based on the national standard of living figures as well. For 2009, qualified contributors can kick in an extra $ 5, 500 for all accounts combined.
These 401K maximum contribution guidelines do not concern any money that your employer may be adding to your account. Most employers will match the amount you contribute at least partly, and that amount is not included toward your maximum contribution amounts.