Each Wednesday 401kBasics posts a new article in a weekly series called “Keep the Course”. This series is designed to give the average consumer information on how to keep their 401k plan on track! Your feedback or suggestions on future articles is welcome.
Each year, the IRS sets a limit on how much money you can put into your 401k plan. For the 2010 year, the limit is set at $16,500. This is referred to as the 402(g) limit. However, in order to encourage retirement savings and allow those who are nearing retirement to save more, there is an exception to this limit known as Catch-up contributions. Under this provision, starting with the year you turn 50 years old, you’re allowed to save an extra amount. For the 2010 plan year, this additional amount is set at $5,500. Therefore, for anyone who will be 50 or older by the end of 2010, he/she could save up to $22,000! In addition to being able to defer an extra amount, many employers will also match your catch-up contributions. Therefore, if your employer matches 50% of what you put in (for example) then you could be saving an additional $7,750 per year in your 401k plan!
The maximum amount that participants can put in their retirement plan is adjusted each year to take into account the cost-of-living increases. Within the next few months, the IRS will issue what the limits will be for the 2011 plan year. Those new limits can be found here. The end of this year is quickly approaching, and there is less than 3 months to take full advantage of this provision. Contact your 401k service provider or your employer to find out if you can save more money in your 401k plan through catch-up contributions.
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