Monday, 9 April 2012

What is 401k Limits?

401k Contribution Limits – Making the Retirement Life of Employees Tension Free and Fun Filled
The very thought of retirement brings in mixed emotions like your routine daily professional life will stop; your income will stop etc. But you can make your retirement life both relaxing and fun filled if you have planned your retirement correctly. Who would not like to do things they have dream while they were too busy with their career like vacation, traveling, get together at exotic locations etc. But for all this we need to make some good savings. Participating in a 401(k) retirement plan will make your dreams real.

A  401k Retirement Plan
Before getting yourself enrolled in any retirement plan one must understand the pros and cons of the same, like if you are willing to participate in 401k plan, then you should know what is 401k plan?. A 401k retirement plan can be described as a benefit retirement plan where you set aside a part of your income which is invested to build your savings for your future. To be a part of a 401k plan you must be an employee of a company and your employer must sponsor 401k a plan. You have the liberty to opt how much of your income has to be set aside each payday. Your employer will also contribute subject to Employer. There are tax benefits for the same to the employee also. You can also choose from a list of investment options such as bonds, stocks, and money market mutual funds, allowing you to create an investment mix that reflects your comfort level with risk.

The 401kContribution Limits
The 401k limits for employees during the year of 2011 is $16500 for a traditional plan. This limit is applicable to employees whose age is below 50 years. If your age is between 50 and 59 and a half you are entitled to a catch up contribution option of an additional $5000. The contribution you make to a 401k plan is deducted from your salary before tax is deducted from your salary. Thus the amount which used to go for tax is now getting deposited as a saving for your retirement and thus is being invested and earning returns. You will have to pay taxes on this income when you make withdrawals at the time of retirement. The Employer 401kContribution Limits have been fixed up to 6 percentage of an employee’s pre tax salary.

The employer matching contribution up to 6 percent of an employee’s pre tax salary is not included in this contribution. In other words the employees who contribute the maximum amount each year will be still eligible for your employers matching contribution above and beyond the 401k limit. If you are an employee earning $200,000 then your employer pre tax contribution will be $12000.

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