Every year, the maximum 401k contribution limits change and it is therefore essential to know how much you can contribute yearly. For the year 2010, the maximum amount that you can contribute is 16, 500 dollars if you are under fifty years of age and contributing to a traditional plan. However, people whose ages lie between 50 and 59 and a half have to contribute an additional 5000 dollars to their 401k plan.
You can reap many benefits by saving the maximum amount of money you can to reach 401k contribution limits. The main benefit is that if you have a large amount of money in your retirement account, you will earn higher interest. The other benefit is the amount of money you save in terms of taxes. You get the benefit of saving untaxed money. This will allow you to earn more returns on the money you invest. The only time when you will pay taxes on the invested amount is when you withdraw the money during retirement. The federal government regards the contributions you make towards your 401K as lowering your income level.
The IRS calculates your income level each year and then puts you into a certain income bracket. If you are in a high-income bracket, you have to pay higher taxes on your income. You can avoid paying high taxes by saving larger amounts of money to reach 401k contribution limits before tax deductions. This will put you into a low tax bracket and you will therefore pay lower income tax.
You can reap many benefits from contributing largely to your 401k retirement plan. The only disadvantage you get is that you cannot spend the money you invest into the plan on other things. It is not possible to make withdrawals on the funds until the time comes for you to retire. Investing in the 2010 401K plan is a perfect way to make retirement savings but is disadvantageous if a situation arises and you need to use the money. However, you can avoid this disadvantage by having money set aside for emergencies before you invest in your retirement.