How to Make Your 401K Contribution Limits on Auto-Pilot


Your 401K contribution limits increase every year. Although in tough economic times like this it is hard to save, the 401K plan which is provided by your employer can be a great tool to help you not only save money for the future but provide tax savings in the present. Because you contribute with money taken out of your paycheck you are taxed on a lesser amount and thus have lower taxes than if you were paying for a retirement plan outside of the 401K plan.

You will be able to contribute the maximum of $16,500 for individuals under age 50 and for those that are over 50, an additional $5,500 to the maximum of $22,000. This limit applies to 401K and Roth 401K plans.

Why contribute when you have to lock up your money for so long?

  • Just the idea that you are contributing with pre-tax dollars is a huge benefit.
  • In addition, all the investment income earned inside a 401K is tax deferred which means that you don’t have to pay taxes on the money until it is withdrawn. That is another huge benefit.

Between those two it is hard for any other investment to compare- unless of course, you were willing to take a lot of risk to make up for all the tax advantages you would lose with an investment in a 401K plan. When you make contributions to your 401K it is like the government is helping you pay for a part of your retirement plan.

Because your 401k contributions are automatically taken out of your paycheck, it is much easier to save than any other plan. Most people don’t miss the money. Your account will grow much faster because the earnings are tax deferred than any other taxable plan. You can feel secure that you have funds working for you over your work life so that you can supplement your social security with additional income.

Make contributing the maximum into your 401K plan a habit. Your contributions today can secure a better financial future for when you decide to stop working.

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