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    Make the Most of Your Retirement Savings by Maximizing Your 401(k) Contributions by beconrad

    If you work for a private employer, chances are good that your 401(k) is your major source of retirement savings. Compared to other retirement plans, such as Individual Retirement Accounts, 401(k) plans provide very generous contribution limits, allowing workers to put aside a great deal of money and save on current taxes. The Internal Revenue Service reviews these limits on an annual basis, and makes changes as they see fit.

    Contribution Limits for 2015
    The IRS reviews the contribution limits for 401(k) accounts on an annual basis and raises them as it sees fit. For 2015, the standard contribution limit for 401(k) plan is $18,000. This limit has been in place for a number of years, and the IRS has not raised it due to low inflation and other factors. Even so, the IRS is likely to raise the contribution limit at some point, so always check that limit before planning your 401(k) contribution strategy.

    Catch-Up Contributions
    Many older workers are ill-prepared for retirement, and they need to save more to catch up and get ready for retirement. That is why the IRS created the catch-up provision for 401(k) plans and IRA accounts. Workers who are 50 years of age and older are allowed to contribute an extra $6500 to their 401(k) plans for 2015.

    This means those workers can contribute up to $22,000 to their plans and get the additional tax savings that extra contributions provide. Not all employers allow these catch-up contributions, so always check with your company before making your investment plans.

    Employer-Specific Contribution Limits
    Even though the 2015 IRS limit for 401(k) contributions is set at $18,000, you might not be able to contribute that much. That is because some employers limit the percentage of an employee's paycheck that can be contributed to the 401(k). Many times this is done to avoid making the plan top-heavy, or skewed toward high earners.

    Some employers set the cap for 401(k) contributions as low as 15 percent of salary. If you work for such an employer and earn $50,000 a year, that means the most you could contribute is $7,500, and you would miss out on a potential $10,000 in tax savings. If your company limits contributions, it is a good idea to speak to your Human Resources representative about lifting that cap.

    Multiple Employers
    If you work for a single employer and contribute to a single 401(k) plan, the administrator of that plan keeps track of your contributions and automatically stops payroll deductions once you reach your annual maximum. If you work for more than one employer and contribute to multiple 401(k) plans, however, it is important to track your own contributions.

    Administrators for other employers have no way of knowing how much you have contributed elsewhere, and that means it is up to you to avoid any excess contributions. You can track your year-to-date contributions by reviewing your pay stubs.

    SIMPLE 401(k) Plans
    If you own a small business or are self-employed, you can open a SIMPLE 401(k) to help your employees, and yourself, save for retirement. The limits for a SIMPLE 401(k) are different than those for a traditional one. For 2015, you can contribute up to $12,500 to your SIMPLE 401(k).

    Making the most of your available 401(k) contributions is one of the best ways to prepare for your financial future. An employer based plan is the best option many people have for retirement, and maximizing those contributions, and the associated tax savings, is very important.


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