subject: Understanding 401k Contribution Limits [print this page] The 401K plan is your most excellent bet to ensure obligatory savings from your wages while acquiring tax benefits as well as, getting a retirement fund. The amount you have in this plan comes directly from the income you have. It is not deemed for the reasons of computing your income tax return.
What is 401k contribution limits? The 401K contribution limits are your pre-tax contributions. IRS issues a maximum quantity of 401K contribution plan, each year. But the amount is verified by the Cost of Living Adjustment (COLA), or some other economic factors. Consequently, you have a particular 401K contribution limits.
Essentially, you can set aside 10% to 15% of your income to your 401k plan. But the amount you set aside always vary on the amount that the company would let you to contribute. Whenever you do acquire an increase in your wage, then you have to tell your company if you would like to raise the amount of the 401K contribution limits. Many find this a good idea since your savings would be increase because you add more amount on it. Your employer might as well add to the 401K plan in some other ways like providing your shares in the company equivalent to the cost of their contributions. Actually, this is applicable to workers with the same earnings, sharing contributions, and post tax contributions. Therefore, it certainly makes sense to observe what your company allows, and then observing what the government states as the utmost amount of contribution limits. You could then make a decision the amount you save into 401K plan you have on monthly basis.
It is very nice to see if you have allocated some of your income to the 401k contribution plan. This ensures that you have an essential savings that would help your retirement easier. Try to imagine on how keeping aside, let's say $100 every month, this would add up to more than a period of 10, 20, or more years. So, if you keep aside a big amount today, you would be sitting pretty during your retirement years, and enjoy the benefits of your savings.
