A Guideline On 401k Contributions, Limits And Rules

By Lonnie Whitcher
Updated December 18, 2014
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A Guideline On 401k Contributions, Limits And RulesThere is a wide range of different retirement plans for individuals to choose from when they are planning out their future for retirement. 401k plans are generally the most well-known and popular employer-sponsored plans around today. However, many people are still in need of a guideline on 401k contributions, limits, and rules.

First of all, it's worth noting that every contribution an employee makes to their plan entitles them to a tax deduction. Any 401k contributions that are taken straight from your paycheck will be free of any tax, and taxes are not paid until you make a withdrawal from your account. When it comes to having a guideline on 401k contributions, limits, and rules, it can be helpful to have an example. So imagine you contributed approximately $20,000 to your plan throughout a single year. Based on the rules that are currently in place, your taxable income would be lowered by $20,000 for that year.

One of the rules of 401k plans is that participants are required to take out a withdrawal by the time they reach 70 years old. This is known as the required minimum distribution (RMD), and any account owner who fails to take their RMD out will be subject to a penalty from the IRS. The reason for this requirement is to allow the government to receive some taxes on your money.

Maximum Contribution

One of the initial things that you may want to learn as a guideline on 401k contributions, limits, and rules is what is your maximum contribution limit. At this point in time, the limit is at $16,500 for adults beneath the age of 50. Adults over the age of 50 can contribute a further $5,500 as a result of catch-up provisions. Some highly compensated workers may not be able to contribute fully to the 401k in their company, and an individual is thought to be highly compensated if they make more than $110,000 a year.

How to Get Involved in a 401k

It is only possible to take part in a 401k plan if your employer offers this option to you. These plans are often very popular with employees because of their matching contributions and tax savings. Usually, 401k plans can be regarded as a great way to keep your retirement saving in check, as having contributions taken directly from your paycheck means you don't have to worry about them. You might even be able to organize your 401k to split contributions between stock funds, money market funds, bond funds, and stocks in a company.

The traditional 401k plan is a great option or many people, because it has a number of unique advantages which can make someone's retirement a great deal better. However it's worth noting that there are other options available that can be used in conjunction with, or in place of a 401k plan. Each plan typically has something different to offer the individual in charge of it, and the one that is right for you will depend largely on your personal circumstances and financial situation.





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This site offers information designed for educational purposes only. You should not rely on any information on this site as a substitute for professional medical advice, diagnosis, treatment, or as a substitute for, professional counseling care, advice, diagnosis, or treatment. If you have any concerns or questions about your health, you should always consult with a physician or other health-care professional.