Maximize Your 401 K Limits for Safer and Secure Retirement Years

Maximizing your 401 K contribution limits ensure a safe and secure retirement. The IRS sets up the 401 K total contribution limits keeping in mind the annual inflation. The total 401 K contribution limit depends upon your type of retirement plan. To maximize the 401 K contribution limits, one can contact his employer or the plan adviser.

401 K is a popular retirement savings investment vehicle in the U.S. This plan enables the employees to save a substantial amount of money for their retirement years. Many of the employees strive hard to save enough for their retirement age ahead, as they have witnessed the plight of retired employees who could not save enough funds for their retirement years.

Employees must ensure that they maximize their 401K contribution limits to their retirement savings plan. There are limits on how much one can contribute to the various types of retirement plans. The IRS defines these contribution limits keeping in mind and adjusting to the inflation over time.

If someone is nearing retirement and has reached the age of 50, he should know that 2012 401 K contribution limits has been increased. Keeping in mind these limits, one can determine how much one can put into his retirement savings.

The 401K contribution limits are announced during the month of October every year. In the year 2012, this limit has increased as the American government recalculates the 401K limits every year on account of the inflation.

For the year 2012, investors can contribute $ 17,000 as an elective deferral to their employer’s 401K plans. Making 401K contributions is an affordable affair as these contributions are made from the pre-tax pay that reduces the federal and state taxes to be paid.

An employee’s total contribution consists of pre –tax deferrals and catch up contributions. At the age of 50 and above, an employee gets the benefit of catch-up contributions, which implies that one can put an additional amount from his pre-tax salary.

If an employee has a traditional or a safe harbor plan, he is permitted to make an extra catch up contribution of $5,500 amounting the total pre-tax contributions to $ 22,500.If an employee holds a simple 401K plan, he may contribute $ 14,000 from his pre-tax salary. This is broken down into $ 11,500 for standard deferrals and $ 2,500 for catch up contributions.

According to a survey conducted by the Profit sharing & 401K Council of America ,98% of all employer sponsored retirement plans allow catch- up contributions ,but only 31 % o f the employees match 401 K catch – up contributions.

Certain employers match their employees’ pre –tax deferrals according to a certain ratio. One of the most popular ratios is when the employer gives 50 cents more to the employee’s 401 K savings account for every dollar deposited from the employee’s pre-tax deferrals.

401 K account is the ideal investment vehicle for retirement years as it allows tax deferral on the contribution and tax deferred growth on the earnings. An employee interested on maximizing his total 401 K contribution limits should check with his employer or the plan adviser, especially when nearing his retirement age.