Maximum 401k Contribution

What is the maximum 401k contribution limit?

Like all other retirement plan, 401k contributions are subject to the maximum 401k contribution limit as set by the Internal Revenue Code Section 401(k) and the terms of each 401k retirement plan. The maximum 401k contribution amount can change from year to year. But in general, the rule is that the maximum 401k contribution amount is the lower of:

1. the maximum percentage contribution limit (such as 10%)allowed under each 401k plan as set by the employer and plan administrator, or

2.  

3. the dollar limit set by the Internal Revenue Code Section 401k such as $15,500 in 2007 and 2008. 

Maximum 401k Contribution limit for most people

Bear in mind that most of the 401k plan allows plan participants to contribute a small percentage of their salary such as 10%. A 401k plan participant can contribute the maximum of 10% their salary but can contribute less or not at all. Most people contribute the maximum percentage of their salary or less. Only high paid executives usually contribute the amount set forth by the IRC code.

Changes in the Maximum 401k Contribution limit

Each year the maximum 401k contribution limit can change based on inflation and many other factors the IRS deemed important. The IRS usually announces the change in maximum 401k contribution limit in mid October for the coming year 401k contribution limit.

Maximum catch up 401k contribution

For 401k plan participants who are 50 years old or older, the maximum 401k contribution is usually increased by $5,000. This increased maximum 401k contribution limit is called the "catch up 401k contribution limit". The catch up 401k contribution limit is added to your regular 401k contribution limit. However, not every employer has provision for the increased maximum catch up 401k contribution limit.