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  • 401k Limits and 401k Deadlines

    Retirement funds and 401k plans can be a little confusing even in the best of times. Read on for expert answers to some of your key questions about 401k limits and 401k deadlines to make sure you'll get the most from your retirement savings.

    One of the more important things you need to remember is that the 401k limits for your retirement account can (and usually do) change from one year to the next. This is done to keep up with rising costs, rising rates of pay, and anticipated increases in the cost of living once you retire.

    What do these changing limits for a 401k mean for you?

    Since the limits tend to change upwards, those changes give you the opportunity to invest even more money into your retirement account. If you're investing with a traditional 401k, this means you can put away more money before you pay your taxes each year. These contributions can sometimes change your tax situation quite significantly in some instances.

    Why are the 401k limits a flat rate rather than a percentage of your income?

    It's really meant to be an effort at fairness. With flat rate limits, everyone receives the same benefits from good old Uncle Sam and no one receives favored treatment simply because of a higher income (and the ability to squirrel away a much larger sum of pre-tax dollars for retirement).

    The flat rate may seem small but when invested properly with growth in mind initially, and with generating wealth in mind later, you can build quite a nest egg without being terribly restricted by 401k limits.

    What should you do about those limits?

    The trend has been for the limits of contributions to 401k retirement plans to slowly increase over time. This gives you the opportunity to increase the amount you add to your retirement nest egg each year. The more money you're able to invest now, the greater the potential payout later will be. Aim to invest as much money as you're allowed to each year. If your employer makes a matching contribution, that's yet another reason to contribute as much as possible.

    What are the current 401k limits?

    The 2009 limit as well as the 2010 limit for contributions to a 401k for employees who are 49 years of age or younger is $16,500. That is subject to change as adjustments are made on a yearly basis.

    Employees who are 50 or older are allowed what is called a "catch up" contribution. The amount for this is currently an additional $5,500, for a total of $22,000. Since these limits will likely change for 2011, be sure to check for the latest numbers at that time.

    What about 401k deadlines?

    What is the deadline for making 401k contributions? You may know that you have until April 15 of the folllowing year when you put money into an IRA. That's not the case with 401k accounts! For those, you will have to make any contributions by the end of the same calendar year.

    So if you want to make contributions for 2009, be sure to make it by December 31st of 2009, i.e., the year for which you want them to count. And if you want to make contributions for 2010, they will have to be in the account by December 31, 2010. Don't miss your 401k deadlines or else you'll lose out on the deductions.

    What about Roth 401k Accounts?

    Roth 401k accounts are different from the traditional 401k accounts. Here, the money is contributed from your after tax income. There's a plus side, however: once you retire, you can withdraw that money tax-free. Or you can keep it where it is and let it earn some more money for your later years -- or your heirs. The limits and deadlines are the same as for the traditional 401k.

    To Roth or not to Roth?

    Whether you choose to invest in a traditional 401k or a Roth 401k or both, the limit for your 401k contributions applies to the total amount you contribute to the traditional 401k and a Roth 401k together.

    In other words, you cannot double your contribution by contributing to both types of 401k, but you can choose how much you contribute to each kind, up to the maximum limit allowed for both together. Going over your 401k contribution limit can result in stiff taxes and penalties, so avoid this at all costs.

    Fortunately, there are financial advisors that can help you work your way through the details. They are there to sweat the small stuff so you won't have to.

    Get help from a financial advisor who specializes in overcoming 401k contribution limits by helping you to invest in alternative investments that can yield a much higher return with excellent safety. How would you like the historical 14% return from this safe, unique investment alternative?


    Article Source: http://EzineArticles.com/3507746
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