 |
 |
 |
Employer 401k Contribution Limits – Making the Retirement Life of Employees Tension Free
The very thought of retirement brings in mixed emotions like your routine daily professional life will stop, income will stop etc. But you can make your retirement life both relaxing and fun filled if you have planned it correctly. Who would not like to do things they have dreamt while they were too busy with their career like vacation, get together at exotic locations etc. Retirement is the apt time for the same. But for all this we need to make some savings. Participating in a 401k retirement plan will make your dreams real.
The 401k Retirement Plan
Before getting yourself enrolled in any retirement plan one must understand the pros and cons of the same. 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 the future. To be a part of a 401k plan you must be an employee of a company and your employer must sponsor such a plan. You have the liberty to choose how much of your income has to be set aside each payday. Your employer will contribute subject to Employer 401k Contribution Limits. There are tax benefits for the same to the employee. You can also choose from a list of investment options such as stocks, bonds and money market mutual funds, allowing you to create an investment mix that reflects your comfort level with risk.
The Contribution Limits
The 401k contribution limit for employees during the year of 2011 is $16500 for a traditional plan. This limit is applicable to employees whose age is below fifty years. If your age is between fifty and fifty nine 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. 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 your returns. You will be paying taxes on this income when you make withdrawals at the time of retirement. The Employer 401k Contribution Limits have been fixed up to six percentage of an employee’s pre tax salary.
The employer matching contribution up to six 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 contribution limits. If you are an employee earning $100,000 then your employer pre tax contribution will be $6000.
Under section 401k the total sum that can be contributed between the employer and employee contributions is the section 415 limit, which is the lesser of 100% of the employee’s compensation or $49,000 for the year of 2010 and 2011. Make your retired life fun filled and relaxing by becoming a part of 401k retirement plan.