You can never underestimate the importance of saving especially when it is for
your retirement. You may have the strength to get up each day and work but
tomorrow is an uncertainty that we should all face. When your strength is
sapped by the passing of years and time comes for you to retire, what do you
expect to live on? Do you have enough savings to last you for the rest of your
life or you have not given that thought yet? While you may think you have more
time to scrimp on retirement in the distant future, chances are, you will
prioritize the urgent needs of the moment; hence decreasing your potential to
have your preferred retirement lifestyle. Act on your future now.
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Retirement Through The 401k Plan
Acting upon your future means that you have to avail a retirement plan. This
way, you can save for your future earlier at a fraction of the cost than hurdle
higher deductions from your paycheck later. Setting up a retirement plan, like
a 401k plan, will work to your advantage. A 401k plan enables you to save for
your retirement early on through the government, your employer, and your
efforts. Your personal contributions are periodically deducted from your
payroll. Because of the cost of living increase, the contribution limits have
been raised for 2009.
New Contribution Limits For The New Year
For 2009, the maximum contribution for 401k is $16,500 for employees 49 years
old and below and $22,500 for employees who are 50 years old and above. For
married employees, information on contribution limits will be released later
this year. When it comes to deferred compensations for retirement, please
remember that when you have more than one plan, including married individuals,
the limits are applicable to all your 401k plans.
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Salient Features of the 401k For 2009
Most of the time, the rates set for 401k vary every year; but for 2007 and 2008,
the figures remained at $15,500 and $20,500, respectively. For 2010, the rates
will be indexed for possible inflation. This means that there is a possible
$500 increments increase. For employees who turn 50 before the end of the
calendar year, the provisions of 401k has become more flexible, allowing such
employees to make additional contribution on their limits before taxes. This is
the concept of "catch up limits," enabling you to save more as the opportunity
arises. For 2009, the catch up rates is raised to $5,500.
There are instances when the employer himself sets the limits on your 401k.
While this is true, there are many employers who are matching their employee's
contributions to the latter's 401k plan. But when employers do match their
employee's contributions, these are not counted as part of the limits set by
law. In lieu thereof, the contributions made by your employer towards your 401k
are limited to 6% of your salary before taxes.
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Limits for SEP Coverage
401k plans also allow coverage for self-employed individuals through the
Simplified Employee Pension Plan or
SEP. SEP supports the self-employed who are
seeking 401k coverage. By virtue of this plan, employers are the ones making
contributions to IRAs established for their employees. A direct tax-deductible
plan, SEP also includes the self-employed individual. The required minimum
earnings to qualify for SEP coverage for 2009 is $550. For 2009, the
contribution limits for SEP coverage is fixed to a maximum of $49,000, which
roughly represents 25% of your wages.
Do you want to maximize the potential of your 401k plan but do not know how?
Here are some easy steps to guide you through your 401k.
Start early. You can never undermine the potential of saving for your
retirement as early as possible. One advantage in starting early is you have
more time to save, which equates to having lesser contributions while starting
young. If you plan for better retirement lifestyle, then you have to plan ahead
and save early.
Consult your employer's retirement program administrators. When you do,
you can learn how your plan can be maximized for your benefit. Since 401k plans
are designed to suit your preferences, program officers are there to help you
know more about your specific 401k coverage. Through consultation, you can ask
questions about the coverage which appear vague to you. When you are informed,
you are empowered and you can make wiser financial decisions for your
retirement. If you do not belong to this category, you can also consult the
Internal Revenue Service for more details on your specifications.
Conduct Your Own Research. Sadly, there are reports of scheming program
administrators. To avoid falling into this pit, it is important that you do
your own research. There are loads of information on 401k plans available
online. If you need solid and reliable information on your 401k, you can check
the retirement community section of the Internal Revenue Service web site.
Remember, the decisions that you make or fail to make today can affect your
future. So start saving for your retirement now.
For more details regarding your 401k plan, you can contact the following: