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Maximum 401k Contribution Over 50 – Ensuring a Relaxed Retirement Life
We all are living in a competitive world where we hardly find time for anything. Time flies like anything and we hardly realize it until we get retired. We start to panic at once retired your regular income is stopped and you will have to lead a life of misery if you have not saved for your future. There is a wise old saying that save money and money will save you. 401k Retirement Plan is your solution to all these worries.
401k Retirement Plan
Planning for your retirement should start early in your career life then only you can reap its benefits at the right time. 401k can be defined 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. There are tax benefits for the same. 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.
Contribution Limits
401k plan is very popular due to the fact that income tax deduction is provided up to a certain limit. Every year (Internal Revenue Service) IRS publishes the maximum 401k contribution limits. This limit is decided to keep a number of factors in mind such as the cost of living, inflation etc. The maximum amount that can be contributed changes every year. Basically you can contribute anywhere from 10% to 15% of your salary into your retirement plan. Well this amount depends on how much your employer allows you to contribute.
For the year of 2011 the 401k contribution limits are set at $16500 about a traditional plan for anyone under the age of 50 years. The maximum 401k contribution over 50 are entitled to a catch up contribution option of an additional $5000. This rule applies to anyone over fifty and fifty nine and a half year old. 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.
Well the employer matching contribution up to six percent of an employee’s pre tax salary is not included in this contribution. In other words if you contribute the maximum amount each year you will be still eligible for your employers matching contribution above and beyond the 401k contribution limits. The only downfall of such a plan is that you cannot make withdrawals before retirement. This retirement benefit plan will be your walking stick during your old age.