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401k Contribution and Catch up Limits

Perhaps the single most important retirement account available to employees today is their 401k plan. In this article, we're going to discuss the current (2012 and 2013) 401k contribution limits, including catch-up limits, pre-tax and total contribution limits, as well as those that apply to highly-compensated employees.

Background of 401k Contribution Limits
If you've been procrastinating, or short-changing your 401k plan, then there is some good news for you. Part of the Restoring Earnings to Lift Individuals and Empower Families (RELIEF) Act of 2001, now allows you to start building-up that retirement account, and in some cases catch-up on some lost time. For many years, the 401k contribution limits had suffered from a lack of attention. Specifically, they were moving up each year at too slow of a pace. Even those investors that contributed faithfully to these accounts, and at the  plan limits, were not seeing enough growth to ensure a  financially secure retirement. But that's no longer a  problem today.    401k Contribution Limits  Additional Resources 401k Loans 401k Losses 401k Withdrawals 401k Hardship Withdrawal Comparing 401k Contributions 401k Contribution and Catch up Limits 401k Debit Card 401k Problems

The recent changes in 401k contribution limits are good news for investors willing to leverage these plans in their retirement portfolio. Starting back in 2004, the contribution limits increased quickly, and in 2014 will continue to be indexed to inflation.

Pre-Tax 401k Contribution Limits
Let's take a quick look at the individual pre-tax contribution limits set by the IRS in the recent past, and over the next few years: - 2008 - 2009 - 2010 - 2011 - 2012 - 2013 - 2014 - $15,500 - $16,500 - $16,500 - $16,500 - $17,000 - $17,500 - plus an index for inflation ($500 increments)

As the table above demonstrates, the 2014 contribution limits that apply to 401k plans will be indexed for inflation; a type of cost-of-living index. These limits can move up in $500 increments in the future. New limits are typically available in mid to late October. For those of you that were putting off retirement planning, and have reached age 50 or over, there is an added benefit in the form of a catch-up provision.

Pre-Tax 401k Catch Up Limits
A catch up limit is just what it sounds like, the current 401k rules allow for plan participants that reach age 50 before the calendar year is over to make additional catch up contributions on a pretax basis as shown below:

For example.2009 . an employer may also offer their employees matching 401k contributions. In 2013.$5.500 . the contribution can be distributed to an employee. If your salary is above $115. your plan may also allow employees to make after-tax contributions. if an employee decides to contribute $10.000 to their 401k plan. the total that can be contributed to a 401k plan is $50.$5.2011 .000 .000 in 2012 or 2013.$5..plus an index for inflation ($500 increments) As was the case with the "standard" contribution limits. whichever is less. In 2012.2013 .500 . An employee should receive a Form 1099-R in any year in which an excess contribution is distributed to them. After-Tax / Total 401k Contributions In addition to the pre-tax or tax-deferred contributions you can make to your 401k plan.$5.000 increment to $51.2008 .500 .000. and then contributed by the employee right back into the plan.000 or 100% of your compensation.500. Usually an employer's match is limited to a percentage of an employee's pre-tax contribution. then the total contribution to the plan would be $15. If the total contributed to the plan is in excess of the amount allowed under the ADP test. the catch up limit remains at $5. then any excess contributions must be either distributed back to the employee or re-characterized as aftertax employee contributions.2010 . which also has a limit. Highly-compensated employees must report these excess 401k contributions as taxable income on IRS Form 1040.500 . the total of your elective deferrals and contributions made for you by your employer under a section 401k plan or SARSEP can be no more than 125% of the average deferral percentage (ADP) of all eligible non-highly compensated employees in a calendar year. line 7. this total 401k contribution limit was indexed to inflation. the "catch-up" contributions will continue to be indexed for inflation in 2014. For a highly-compensated employee. this becomes your total 401k contribution. and the employer matches 50 cents on the dollar.$5. and moved up a $1. and can increase in $500 increments. When after-tax contributions are added to pre-tax contributions. For example. then you may be subjected to contribution limits based on your employer's overall 401k participation rates. then you may need to contact your employer to see if any additional limits apply to you.2012 .500 .000 in that calendar year.$5. Matching Contributions In addition to the elective deferrals made by employees. Access to Contributions .2014 . In 2013. Highly-Compensated Employees If you're classified as a "Highly Compensated" employee.

About the Author . and fall under the 401k withdrawal guidelines. as well as other rules or regulations that might apply. Your plan administrator should have documentation outlining the exact rules that apply to your particular employer's plan. That document should explain these limitations.Earnings on all contributions are considered tax-advantaged. However.com . after-tax contributions are considered fully accessible to the employee since taxes have already been paid on that money.2012 Money-Zine. The rules for qualified retirement plans are complex.401k Contribution and Catch-up Limits Copyright © 2004 .