The amount that you are legally permitted to contribute into your 401K account varies from one year to another, depending on the standard of living rates for the previous year. These rates are released by the IRS in mid-October every year. The standard of living is very important because it will ultimately determine your 401K maximum contribution guidelines for the following year.
The maximum amount is a combined total for all of your 401K accounts, including any Roth 401K accounts you may have. Therefore, you cannot open additional accounts and put this same amount into each of them. The combined total cannot exceed the maximum rate for the year.
You must consider the maximum contribution amount as stated by your employer’s plan as well as the maximum rate given by the IRS when determining how much you can legally contribute.
Whichever of these rates comes out lower will be your maximum contribution amount for the year.
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.
The maximum figure set by your employer will be based on your total salary for the year. It will always be a percentage of whatever you earn for the year, rather than an exact figure for everyone. For an easy example, consider someone who makes $30, 000 for the year of 2009. Their employer plan allows for up to 10% of their salary to be contributed, so their max according to this plan would be $3, 000 for all combined accounts for the entire year.
This figure is much lower than the amount the IRS has set, so it will be the maximum amount you can contribute to all of your 401K plans for the year of 2009.
People who have to pay attention to the IRS number each year will be those in the higher income brackets. If you are not earning over $100, 000 a year, then you will be bound by the guidelines set up by your employer.
Yet, there is an extra catch-up contribution allowed for contributors aged 50 or over. For 2009 this figure is an extra $5,500. Again, this is to be spread amongst all of your 401K accounts if you have more than one. Not every employer allows the catch-up contributions, so you must ask if you want to take advantage of the extra contribution.
These 401K maximum contribution guidelines do not concern any money that your employer may be adding to your account. Most employers will match the amount you contribute at least partly, and that amount is not included toward your maximum contribution amounts.
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