If your company sponsors a 401(k) plan, you will be happy to know that the 401(k) contribution limits were raised in 2009. This is the first change to the 401(k) contribution limits several years, and it is a welcome change in my book!
In 2008, 401(k) contributions for those under age 50 were limited to $15,500, and those 50 and over could contribute catch up contributions of up to an additional $5,000, for a total contribution of $20,500. Both of those contribution limits increased for 2009.
2009 401k employee contribution limits
The 2009 401k employee contribution limits increased from $15,500 in 2008 to $16,500 for 2009. An additional $1000 toward your retirement fund is a nice bump if you can afford to max out your 401(k). These limits apply to everyone under age 50. Those who are age 50 and over can make “catch-up” contributions.
2009 401k catch-up contribution limits raised
The 401(k) catch up contribution limits were also raised for 2009. In 2008, those aged 50 and over could make catch-up contributions of $5,000. In 2009, those who are 50 and older are allowed to sock away $500 more than last year, or up to $5,500. The maximum 2009 401(k) contribution for those 50 and over is $22,000.
These limits apply to 401k, 403b, 457, 401a Plans, and the Thrift Savings Plan
These contribution limits apply to more than just the 401(k) plan – they actually apply to several different retirement plans that are written into the tax code, as well as the Thrift Savings Plan, which is similar to a 401(k) plan, but is only available to certain government employees. The contribution limits also apply to the Roth and Traditional versions of the 401(k) plan.
Maximize your 401(k) contributions if you are able
If you are able to maximize your 401(k) contributions, you should be well on your way to setting yourself up for a solid retirement fund. To determine how much to contribute to maximize your 401(k) account this year, divide the maximum you can contribute (either $16,500 or $22,000) by your total salary. The percentage you see is how much you should contribute every paycheck.
If you cannot afford to contribute up to the maximum, then try to at least contribute up to your employer match if your employer makes matching contributions. You should be able to change your contribution limits through your Human Resources Department.
IRA or 401(k)? Another consideration when contributing to your 401(k) plan is whether or not you should contribute to it at the expense of contributing to a Roth or Traditional IRA. I covered this topic in a previous article – where should you invest first – IRA or 401(k)?
If you can afford to maximize both investments, then go for it! Here is more information regarding the 2009 IRA contribution limits. Whichever you choose, you are doing the right thing by saving and investing for your retirement.
{ 10 comments… read them below or add one }
Interesting post Patrick. My company as a non-profit has a 403b, but they don’t match our contributions. However, lest anyone think I work for a stingy company, they have a pension plan that they pay into for each employee.
I haven’t been doing any retirement investing in the past year. (I know … Shame on me!) I’m going to talk with my financial planner about starting an IRA. I’m thinking it would make more sense for me to invest in an IRA than the 403b, since there’s no matching money there. Any thoughts?
Kristen: Pensions are awesome, and extremely rare these days. It’s a great thing you have one!
I think you should invest additional funds for retirement because your pension + social security probably will not be enough to cover your retirement needs. I don’t know enough about your situation to recommend investing in an IRA over your 403b, so speaking with your financial advisor is your best bet.
Kristen-
Generally speaking, your correct in your thoughts in starting an IRA. I say “generally” because as Patrick says, I don’t know enough about your situation. Without a match in your 403b, opening an IRA will allow you to invest in many more options that the limited offering in your 403b’s. Also, the 403b realm is changing and by what I’ve seen thus far, not for the better. I could elaborate, but don’t want to put anybody to sleep
Definitely suggest meeting with your planner to see if the IRA makes sense and whether you should go the Traditional or Roth direction.
Good luck!
I just hope your money is with my company! I reccomend the roths just b/c U wont have to worry about it later, but thats just my opinion.
doctor S: My money is spread around a few different places. I need to work on consolidating my retirement accounts this year! I agree about the Roth. So long as the government doesn’t change rules about the money you already have in there, a Roth is probably the best deal you will find.
Generally a good idea to max out contributions if possible. The only caveat I have is to consider more than target retirment/401K funds. Just look at their performance over the last 3 years compared to regular 401K funds.
I have a questions I’m hoping someone can answer. My company offers a match on contributions but you are only allowed to contribute a % based on salary. I get screwed because a large part of my income is from bonuses and commissions since I am in sales. My questions is can my company structure the 401K plan this way?
Todd, Yes, a 401k plan is voluntary for the company and they can structure their 401k plan as they see fit. You can contact your HR department and ask if you are able to contribute a portion of your bonuses toward your 401k plan (some companies allow this).
I am eligible for the catch up and evenly divided my contributions to take full advantage of the catch up. My employer matches up to a certain percentage but when I reached the base $16,500.00 limit before reaching the catch up, my employer’s match contributions stopped and I was told it won’t contribute anything more once the base amount is reached. therefore I lost out on over $1,000 in company match. Is this normal?
Mark: your employer is being unfair.
im our Plan administrator, and this seems to me like your plan admin isnt doing a good job. The reason we have this Plan at our firm is to attract, and retain quality staff. I view this as our best benefit, and it sounds to me that either your plan admin isnt informed, or someone is trying to skimp on the plan. In the end, it sounds like they will have at least one unhappy camper on their hands.
you may have to ask your CFO or some other better informed corporate officer about this.