2010 401k Contribution Limits

By Jenn Quilter

The maximum limit for your retirement account contributions changes every year so it's good to keep up to date. The 2010 401k contribution limits are set at $16,500 for a traditional plan for anyone under fifty years old. If you're between the ages of fifty and a fifty nine and a half you have a catch up contribution option of an additional $5,000.

Contributing the maximum has multiple benefits. The obvious first benefit is that you'll have a great deal of money in your account earning you returns year after year for your retirement. The second benefit is for your taxes.

The money you invest in your 401k is taken from your income before taxes are taken out. This means a few things, the first being that some of the money you would have spent on your taxes is now being invested and earning you returns. The second being that you will be paying taxes on this income when you make withdrawals in retirement. The final thing because that this lowers your income level as far as the federal government is concerned.

Each tax year your income is calculated and then you are put into a tax bracket. The higher income bracket, the higher the percentage of your income that you owe to taxes. If you contribute a lot of your income to your 401k before taxes are taken out, however, you may lower yourself into a lower tax bracket, meaning you then owe a lower percentage of your income to taxes.

You can see how there are multiple facets to the benefits of this decision. The only real downside to hitting the 2010 401k contribution limits is that the money you are investing cannot be spent on other things. You cannot withdraw the money from your retirement account until you reach retirement age. This is good for your retirement savings plans, but a bad thing if you decide you need immediate access to this money- this can be avoided however by making sure that you have a more immediate source of emergency cash before investing in your retirement.

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Retirement accounts don't have to be so confusing. Learn more about your retirement savings options like 401k balance concerns, maximum contribution limits, IRA options, and the early withdrawal 401k penalty.