401(k) Contribution Limits for 2009

If you contribute to a 401(k) plan, you may be happy to hear that this year’s contribution maximum is increasing. In 2008, the tax code allowed employees to contribute up to $15,500. Anyone who turned 50 years old in 2008 could also add a catch-up contribution of $5,000 above this limit, bringing the maximum to $20,500 for these employees.

In 2009, the basic maximum for 401(k) contributions is $16,500. Employees 50 and older can add an additional $5,500. These limits take your pre-tax, after-tax, and Roth 401(k) contributions into consideration, so the sum of all your 401(k) contributions in 2008 cannot exceed the limit for your age group.

I fell short of contributing up to the maximum in 2008, but only by about $1,000 or $1,500. That’s mainly due to bad planning and changing my contributions throughout the year. The other danger is to set your contribution rate too high and miss out on the employer matching contributions. My new contribution rate for 2009 is set to bring me to the maximum based on my current salary.

In this economy, though, anything can happen. I may receive a substantial raise or I could be laid off. I can only plan using the knowledge I have right now.

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Tagged as: 401(k), Investing

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Flexo, the owner and creator of Consumerism Commentary, has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow him on Twitter.

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Tessa

I contributed the maximum for 2008--$15,500. What I planned was to contribute enough each pay period so that my last check would secure my employers match, while giving me more cash for the holidays--about $375. Each pay period, I paid about $16 extra. It was great to have the cash "windfall" by "saving" throughout the year.

Chris

I love that the government is raising these limits - it's just sad that a lot of people will probably cut contributions after the way the market performed last year. It sounds like you aren't falling into that trap - and hope all the other readers follow your example.

thomas

I agree about the raising of limits. I just wish they didn't put restrictions on how much can be invested. Considering how much most people lost last year, it would be nice to take advantage of the down economy to help offset the losses long term.

CalGal

What do you mean by "danger"of missing out on employer match due to too high contribution rate? I believe employer match is not counted in 401K personal contribution limit. Can you clarify? Thanks

Flexo

CalGal: Employer match isn't considered in this 401(k) limit (there's a higher limit that all contributions, including employer match, is subject to). In my case, my employer matches the first 4% of my salary, but it does so on a per-paycheck basis. That means that if I hit the limit of my personal contributions in September and can no longer contribute to my 401(k) for the rest of the year, I won't receive any further employer match. In other words, I contribute 30% of each paycheck and my employer matches the first 4% of the paycheck. If I contribute 30% for the entire year and don't hit my limit, the company also contributes 4% every pay period. If I contribute 50% of my paycheck and hit the limit before the year is over, the 4% match will also stop. If I contribute only 3% in any one pay period, my match will also be only 3%.

Many companies operate their matching contributions like this, but some don't. I will maximize my employer match by making sure I contribute at least 4% of my salary each pay period while not exceeding my personal contribution limit. If I hit the limit early, the employer match would stop when my contributions do.

fv

Last year I contributed the maximum to my 401k and Roth IRA. It's not quite clear to me whether the law allows that or if there is a contribution maximum ($15500 for BOTH Roth IRA and 401k). Thank you.

David C

@ fv: as far as I understand it, they're separate so you could contribute up to $15.5k in a 401k and $5k/$6k to an IRA. An expert's opinion to back that up would be appreciated.

Also, keep in mind that your employer may place a lower limit on contributions than the feds regulations provided above by Flexo. My work, for instance, only allows 25% of my salary to be place in my 401k so I can't contribute more than ~$13k to my 401k.

Andrew

The 401(k) and IRA limits are separate, so $15,500/$20,500 for all types 401(k)s and $5000/$6000 for all types of IRAs, for a possible total of $20,500/$26,500.

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