October is an important month if you have one or more 401K investment account. This is the month that the IRS releases the updated standard of living rate. This is the figure which determines how much you will be allowed to contribute to all of your accounts in the next year. This amount and the rules surrounding it are the 401K maximum contribution guidelines.
The amount that you are allowed to contribute is a combined total for every 401K and Roth 401K account that you have. That means you cannot put this amount into every account, but have to split the amount amongst the different accounts if you have more than one.
To determine exactly what your maximum contribution can be for the year 2009, you have to figure out two different numbers. The first is the maximum figure released by the IRS for all contributors and the second is the maximum limit imposed by the plan your employer has set up for you.
You will be allowed to contribute up to the lower figure of these two.
For 2009, the max contribution is up over a thousand dollars from the previous year. It is currently at $16, 500 and that is based on the new figures for the standard of living in the country.
Now that you know this information, you have to determine the percentage of your income that your company plan will allow you to contribute. This will always be in the form of a percentage of your total salary and never one set figure. For example, someone who earns $45, 000 a year would be allowed to contribute up to $4, 500 if their employee plan allowed for a max of 10% to be contributed.
Since the amount governed by the employer’s plan is much lower than the IRS number, this contributor will be bound by the maximum amount given by the employer. That means the IRS number does not apply to this person.
If you do not earn more than $100, 000 for your annual salary, then you will always be looking at your employer’s percentage figure instead of the IRS figure. The higher $16, 500 contribution applies to those in the higher income brackets.
If you are 50 years of age or older you can also contribute an extra $5, 500 this year if you choose to do so. This is called the catch-up contribution for older contributors and your employer is not required by law to allow you to participate. If you want to do this, ask your employer if it is an option for you.
If your employer matches part or all of your contributions, this added money is not included in your 401K maximum contribution. You can contribute the full amount of your maximum figure and everything your employer throws in is extra.
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