You can’t save as much as you want. If your mortgage is paid, the student loans paid off, the children self-sufficient, and your rental income more than enough to live on, you might want put your entire salary into your 401(k). Your income, after all, would then become effectively tax-free until you retire. If you use a traditional 401(k), you’d pay income tax during distribution, but you’d pay nothing until then.
401(K) Contribution Limits
The government is wise to that plan. The limits it places on contributions to a 401(k) plan change from year to year; they rise with inflation. In 2021, the maximum contribution is $19,500, or $26,000 for people aged over 50. Employers can only match those contributions so the total limit that an employee can put in their 401(k) plan each year is $58,000 or $64,500 for workers aged over 50.
Unless you’re a very high earner, it’s unlikely that you’re going to reach those limits. So you’re going to be faced with a much tougher question about the amount that you should save for your retirement. It’s likely to be less than $26,000.
- What Is a 401(k)?
- How a 401k Plan Works
- 401k Contribution Limits
- The Difference Between a 401(k) and a Pension
- The Benefits of a 401k
- Four Alternative 401(k) Plans
- How Employers Should Choose a 401(k)
- What Is an Indexed Annuity?
- 5 Questions Employees Should Ask Before Choosing a 401(k)
- Contributing to Your 401(k) Plan
- Contribution Limits
- Matching Contributions
- Your Age
- How to Set Your 401(k) Contribution Targets
- Calculating Your Social Security Benefits
- What’s In Your 401k Plan?
- Track Your 401(k)
- The Present and Future Value of Your 401(k) and Why You Need to Know Them
- Rolling Over Your 401(k)
- You Don’t Have to Rollover Today
- Moving Your 401(k) to Your New Employer With a Direct Rollover
- Moving Your 401(k) to Your New Employer With a 60-Day Rollover
- Borrowing Funds from Your 401(k)
- Lend Yourself Interest-Free 401(k) Funds
- Borrowing from Your 401(k) to Buy a Home
- Conclusion
