401(k) Plan Contribution Limits

March 31, 2010 in Investing, Retirement, Taxes with 2 Comments

Contribution Limits

       The maximum amount you can contribute to a 401(k) plan depends on your age. These are the correct 401(k) plan contribution limits for 2009 and 2010. This limit can be split between multiple qualified retirement plans (401(k), 403(b), SIMPLE, or SEP), but the combined total of your contributions cannot exceed this limit. You cannot contribute more than 100% of your compensation.

  • Under age 49 at the end of the year: $16,500

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  • Age 50 or older by the end of the year: $22,000 (only if your plan permits catch-up contributions)


Deadline for Contributions

       Elective contributions are generally made from your paycheck, so you need to have your contributions set up within the year. You can choose to contribute everything at the beginning of the year if your plan allows it, or you can just contribute a certain amount or percentage from each paycheck.

Tax Deduction for Contributions

       Your contributions to a 401(k) plan reduce your taxable income, so you do not need to claim a tax deduction on your return. However, you may be eligible for the Retirement Savings Contribution Credit.

About Paul Williams: Paul Williams is a fee-only CERTIFIED FINANCIAL PLANNER™ professional and Enrolled Agent in Lancaster, PA. He has a passion for walking alongside people who want to manage their finances in light of the reality of the kingdom of God. Learn more about his financial planning and tax preparation services.

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  • Ken Oster

    I now have Roth 401-K as an option. can you go into the benefits of those also? it’s interesting looking at the option of paying the tax now versus paying it on that (plus the gain) later…..

  • http://www.providentplan.com Paul Williams

    Hi, Ken! The Roth 401(k) option is good if you think your tax rate in retirement will be the same or higher than it is now. If you expect your tax rate to be lower in retirement, you’re better off using the traditional 401(k). If you want flexibility or to hedge against either situation, you might want to consider splitting up your savings between the traditional 401(k) and the Roth 401(k).