401k Rules FAQ - 401k Contribution Limits

While 401k investment plans are a nice way to save money for retirement, there are certain 401k rules on how much you can contribute to all of your plans collectively in a given year. The maximum 401k contribution limits change from one year to the next and apply as one figure for all of your plans, so your total must fall below the limit each year.

The maximum amount allowed to be contributed is different every person, depending on two different numbers. First, you have to determine what percentage of your income your employer's plan will allow you to invest. This will be in percentage form. For example, someone who makes $45000 a year and has a plan that states they can contribute up to 10% of their income would be allowed to contribute up to $4, 500 in 2009.

You have to find out this amount from your employer, but it is not necessarily going to be your personal maximum contribution. The IRS also sets a maximum contribution which no one in the country can exceed. This is just one number that applies to everyone, but it is aimed more at those who make in excess of $100, 000.

The IRS 401k rules mandated 401k contribution limits for the current year at $16,500.

In our example above, the $4,500 set by the employer is lower than the IRS mandated number. This would mean the IRS number does not apply and the employer's limit must be followed.

If you are over the age of 50, you also have the option of participating in an optional catch up contribution. This allows you to contribute up to $5,500 extra since you are closer to retirement age. Once again, this amount has to be reached collectively across all of your 401k and Roth 401k accounts.

The current year's 401k contribution limits are a direct reflection on the standard cost of living in the country. This rate changes every year, so it is important to keep up with it to ensure you are contributing the right amount to all of your accounts.

You'll want to make sure you don't exceed the 401k contribution limits when making your contributions. Similarly, when it comes to the 401k rules there are certain things set in place, so always consult a qualified advisory before making a major move.