The contribution limits of 401(k)s are generally increased year-to-year and published by the IRS.
As of 2016, an individual can contribute up to $18,000, or 100% of compensation, into their 401(k) account on a pre-tax basis. This is the employee’s contribution only, and does not include employer contributions.
There is a $35,000 window that can hold employer contributions, which may contain matching contributions as well as a profit-sharing component for a total of $53,000 in employee/employer contributions per year.
If an employee is over 50 years old, he or she may be able to contribute $6,000 more a year in Catch-Up contributions, for a total of $24,000 in employee contributions, or up to $59,000 per year from the employee and employer combined, but not all 401(k) plans are required to allow catch-up contributions.
Also, the maximum allowable contributions will be different for each plan, depending on the degree of participation by non-highly compensated employees (NHCEs), and other factors. Excess contributions, which are amounts that make the plan too top-heavy per testing requirements, will be returned to the employee.
The 401(k) plan contribution limits are generally increased year-to-year for cost-of-living adjustments.
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For more help on managing your investments in your IRA, check out more articles, definitions, and FAQs here at Tickeron.
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