401k Contribution Limits

There are limits on the amount that you can contribute. Employees can contribute up to $19,500 a year. People aged 50 or older can add another $6,500 to top up their funds. Employers can match those contributions until the total payments reach $58,000, or $64,500 including top-up funds.

Any withdrawals made from a 401(k) plan before the age of 59.5 will incur a penalty of 10 percent in addition to income tax. Like most retirement plans, pulling funds early from a 401(k) plan is expensive and best avoided.

But 401(k) plans can also have vesting conditions. Employees may only be able to access their employer contributions after they’ve worked at a company for a pre-defined period of time. In effect, a 401(k)’s vesting plan helps to keep an employee at a business or risk losing some of their expected retirement payments.

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