Monday, March 21, 2011
401(k) Contributions- How much should you do??
The answer is you should do the maximum which is $16,500 for those under 50 and $22,000 for those 50 and older. Many companies have matching programs that put money in your retirement plans based on your contribution. It is like getting a raise. The 401(k) contribution is deducted from your paycheck which is not a good thing, but it also comes off your taxable compensation which is a wonderful thing. Any money earned in your 401(k) account is tax free. You do pay taxes on the funds when you pull them out for retirement. Making 401(k) contributions is one of the easiest and best tax planning ideas out there.
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Brad - what happens if you plan poorly and reach your maximum ($16,500) in my case before the end of the year? Will I automatically be cut off from contributing anymore that year? Will I be penalized for "over" contributing?
ReplyDeleteThe company should stop you from contributing more than the $16,500. If they don't, you will have to withdraw the excess by April 15 to avoid being taxed on it.
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