401K Contribution Limit

When contributing amounts of money into a 401(k), there is a contribution limit that you cannot exceed. The current 2009 401k contribution limit for people under the age of 49 is $16,500. This is a thousand dollars increase over the previous year, 2008, when the contribution limit for a 401k was $15,500.

For people over the age of 50, the 2009 401k contribution limit is $22,000. The raise in the contribution limit is $1,500 than in 2008. For following years after, the contribution limit will increase according to inflation during that year. The 401k rules also allow you to make additional catch-up contributions, with a limit.

The 401k catch-up limit is currently $5,500 for 2009. In 2010, the catch-up limit for contributions will be $5,500 plus an index for inflation which will increase in $500 increments. Employers can also impose contribution limits on your 401k account.

The employer can impose up to a 6% contribution limit of your pre-tax compensation. IRA`s and Roth IRA`s also have a yearly contribution limit if you wish to deposit into the account. The limit for a Roth IRA in 2009 for a person under the age of 49 is $5,000. This contribution limit for a Roth IRA has remained the same as it was during 2008.

If an individual is 50 years of age or older, the contribution limit for a Roth IRA is increased to $6,000. This is due to the catch-up contribution limit which is $1000. A Roth 401(k) is also subject to the same contribution limit as a Traditional 401(k), $16,500 for people under the age of 49 and $22,000 for those over the age of 50. Since contribution limits on 401k`s are much higher than those of an IRA, you can save much more tax-free retirement money by going with a 401k.

The limits on all of these retirement accounts are combined. For example, you can have $11,000 in one 401(k) and $11,000 in a Roth 401(k) if you are over the age of 50. However, you cannot have a combined total of more than $22,000, as this would be going over the contribution limit for the year.

Also, keep in mind that if you move money, there are 401k transfer rules, limits and possible fees.