Below you will find the 401k Contribution Limits for employees, employers, and also for participants who will be at least 50 years old by the end of the calendar year. You should also consult the IRA contribution limits before completing your retirement plan.
2016 2015 2014
401 (k) Contribution Limit $18,000.00 $18,000.00 $17,500.00
401 (k) Catch-Up Contribution Limit $6,000.00 $6,000.00 $5,500.00
401 (k) Contribution Limit for Those Over 50 $24,000.00 $24,000.00 $23,000.00
401 (k) Employer Contribution Limit 6.0% 6.0% 6.0%
As you can see, there was no cost of living adjustment from 2015, meaning that the 401k contribution limit for 2016 has stayed the same since last year.
As in previous years, plan participants who will be 50 years of age by the end of the year will be able to make a “catch-up” contribution. The catch-up contribution is an additional amount that those close to retirement are allowed to make. As you can see, the catch-up contribution limit will continue to be $6,000 for calendar year 2016.
Also note that the employer 401k contribution limit remains at 6% of the employee’s pre-tax salary. What this means is that an employee that has a gross salary of $100,000 will be able to contribute up to $18,000 during the year. If they will be at least 50 years old by the end of the year, they will be eligible to make a catch-up contribution up to $6,000; bringing their total annual contribution to $24,000.
If they contribute enough to gain their full 401k employer match, then their employer will kick in an additional $6,000 toward the employee’s retirement. This means that the employee in our example will put away $30,000 this year for retirement!
I’ve talked before about contributing enough to qualify for your full 401k employer match, so be sure to read that article to see why it is so vital to your financial health. Basically, I show how you can earn a return of 167% on your 401k before you begin investing!
With this type of return, and the generous amounts that we are allowed to set aside, contributing to a 401k should be at the top of your list of New Year Resolutions!
photo by MJTR
