401k Limits for 2009

401(k) 2009 max limits

Saving For Your Retirement

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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401k retirement

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.

Employer's Contributions

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:

Internal Revenue Service
Web site: http://irs.gov

Telephone Assistance for Individuals
Toll-Free: 1-800-829-1040 (based on your local time)

Telephone Assistance for Businesses
Toll-Free: 1-800-829-4933 (based on your local time)