How to choose 401k contribution Limit for your 401k plan?

The maximum amount a 401k participant can contribute to his 401k account is set every year by IRS after taking inflation into account. In year 2011, people can contribute up to $16,500 as an elective deferral to their 401k plan account. But, if the participant is 50 year old or more than it, then can contribute an additional catch up contribution of $5,500. But, for the year 2012, IRS has announced the maximum 401k maximum contribution limit as elective deferral as $17,000. And the additional catch up limit has now become $6,000 for the year 2012.

 Your 401k Catch up limits:

401k GPS, the leading investment advisory firm of USA, can provide you the additional information about highly compensated employee limits, If you fall into that category.

The catch-up 401k limit for the year 2012, is now becomes $5,500, and the maximum 401k contribution limit announced by IRS for the year 2012 is $17,000, and now again in 213, it is $17,500.

How to choose 401k contribution Limits for your 401k  plan?

These are some important points, which can help you to decide the right contribution percentage to your 401k retirement plan.

1)      What is your company match offer?

2)      What is your limit and your company’s limit?

3)      What is your age?

4)      Your personal situations?

5)      Understand the power of Compound Interest very well.

401k Contribution and catch-up Limit for 2012

In a 401k retirement plan, it’s vital to keep in mind that the contribution limit of 401k will change each year. The maximum limit is based on the living costs of an individual in the previous year. The contribution limits are basically announced during October 2011. The 2011 contribution limit is same as that of the last 2 years and maximum limit is $16,500/annual but in 2012 it has increased in 2012 because the American government recalculates the limitation regularly on account of the inflation.

The 401k plan is a great retirement saving account for the employees. The 401k plan enables the employees to collect certain money during their job by saving account to get proper amount as pension for the last age of life. Many employees today’s work on reaching their 401k limits because they’ve witnessed the fortune of some retired employees who do not have enough fund. Because growing age without or little fund can absolutely be tragic, employees must ensure that they maximize their 401k contribution limits to this retirement savings plan. New 401k limits in 2012 for certain items of the plan were announced by the IRS in 2011 October. Together with the living cost adjustments for all other 401k retirement plans accredited by US government, the limits for total 401(k) contributions for the whole 2012 were disclosed.

If you're enrolled in 401(k) plan, you're enabled to place-up to $50,000 in 2012. If, thus, your annual compensation is less than $50,000, then 100% of your annual compensation will be your total 401K contribution ceiling for this year. Total 401k Limits mean all your catch-up contributions, post-tax contributions, and pre-tax funding. Employer matches, if eligible to your 401k plan, are also counted with all these amounts. In 2012, the total ceiling for all plans was at $49,000 or 100% of your annual compensation. Depending on the living cost index determined by the American government, your total 401k Limits limit can be enlarged by $1,000 - as exhibited by the boost in 2012.

For your pre-tax amount, you can be enabled to put in up to $17,000 for this year if you are a traditional plan holder. It’s to be deducted from your amount of salary before withholding FIT. This special limit was set at $16,500 in the past two years. But it is indexed for inflation each year and can be raised by $500. If you are a simple plan holder, thus, you necessity to take consider that the maximum 401k contribution you're enabled to make from your salary’s amount before taxes remains at $11,500.

401k catch-up limits also stay the same as the last two years. For safe harbor and traditional plan holders, it is still at $5,500. For simple 401k plan holders, the ceiling's at $2,500. Catch-up amount is enabled by the government simply for those aged 50 or above, so they can take the saving amount for retirement.

These are only the enabled 401k contribution Limits that were increased for 2012. If you are a 401k retirement plan holder and you would like to maximize your chance to save the fund for your retirement, you ought to consult your boss. 

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401k contribution and maximum catch up limits

In simple word, 401k Maximum Contribution Limits is the amount you contribute to your 401k account. Therefore, it is your responsibility to contribute the most of your 401(k) plan so that you can spend your life after retirement with peace and money. In this article, we will share some ideas about 401k contribution limits and 401k maximum catch up contributions for people over 50 years, pre-tax contribution limits and also the rules for highly compensated employees.

 Changes in Pre-Tax 401k Contribution Limits:

Year                             Pre Tax Contribution Limit

2008                              $15,500

2009                              $16,500

2010                             $16,500

2011                             $16,500

2012                              $17,000
2013                             $17,500

 Changes in Pre-Tax 401k Catch Up Contributions

2008                              $5,500

2009                              $5,500

2010                             $5,500

2011                             $5,500

2012                              $5,500

2013                             $5,500

 Benefits of 401k Employer Match Contribution Limits:

An employer may also offer their employees matching 401k contributions more than the elective deferrals made by employees,.  Commonly an employer's match depends on the percentage of an employee's pre-tax contribution.

Highly Compensated Employees

If an employee’s annual salary is above $105,000 for the years 2007 to 2009, then that employee is classified as a highly compensated employee