401k Limits Broken Down

The 401k is one of the more complicated investment vehicles there is, but most of the rules affect

employers rather than most people. That being said, this article will focus on the 401k limits for

people contributing to their personal 401k. Remember that everything in this article is in terms

of one person, so if you are married, these limits are for both of you individually. (If you want

more information on personal finance visit savingsvillage.com)

401k limits

Like IRAs, the 401k has limits put on it every year by the IRS that restrict the amount you can

contribute to it. However, unlike an IRA this limit is much higher and you don’t necessarily

have to max it out every year to make significant progress towards your retirement savings goal.

401k Contribution Limits

Your 401k contribution limits are composed of three different sections. The first section is a

general contribution limit that is imposed on everyone with a 401k. Everyone has this basic

limit, meaning that you can’t contribute more than this out of your own income.

In many cases, you may have an employer match plan for your 401k, where if you contribute to

your savings account they will match a certain percentage (it can be greater than 100% in rare

cases). Because of this aspect of the 401k, there is a second limit, referred to from now on as the

Total Contribution Limit.

Finally, if you are over 50 years old there is a third limit, often referred to as a “catch-up”

contribution limit. This is to help anyone that started saving for their retirement a bit late, so that

they can contribute a little extra. Please note however, that the total contribution limit is still the

same, you just have the option of contributing more than the basic limit out of your personal

income.

401k limits 2012

The 401k limits 2012 have either increased or stayed the same from the past year as typically

expected. The basic limit for 2012 is $17,000, which is up $500 from 2011. This is the limit that

everyone shares no matter what age.

If you are over 50 however, you have the catch-up limit to add to the basic limit, and in 2012 the

catch-up amount is still $5,500, the same as last year. This means that excluding an employer

match, if you are over 50 you can contribute 17,000+5,500 which is a total of $22,500.

Finally, your total contribution limit in 2012 for your 401k is $50,000, up $1,000 from 2011.

This is the total amount between your personal contributions and your employer matched

contributions, regardless of age.

401k limits 2013

The 401k limits of 2013 have not yet been released by the IRS. Like all of our pages on savings

village we will update them as soon as new information becomes available. Based on previous

years the 2013 401k limits will most likely be released either in December of 2012 or January of

2013. What you can expect however is that the limits will be at least as big as 2012, and may

increase $500-1000, depending on the rise of cost of living.