401k Investing: The Limits of Your Contributions

Having a 401k can be one of the smartest and most anxiety-free ways to build wealth for retirement. Many are simple to maintain, may have impressive growth rates, and can be increased up by contributions from your employer.

But 401k investing may not be completely maintenance-free. There are generally limits to how much you can contribute every year, and it can be important to know the rules. If you have a registered investment advisor looking over your 401k investing strategy, they may provide you with guidance about those limits. But if you're managing it yourself, it can be important to familiarize yourself with the rules.  Answers to a few basic questions could be helpful.

What are the guidelines on restrictions? The amount of 401k investing you can do per year is usually limited by two restrictors: The federal government and your employer. The IRS sets limits every year, which can be increased peridocially. Your employer may impose a limit as well, generally in terms of a percentage of your salary.

What's a "catch-up" limit? If you start your 401k late in your career, you may be eligible to contribute more, as long as your employer allows for it (keep in mind that employers aren't required to allow it). In general, you need to be over 50 years of age; if so, you might be able to contribute a certain amount over and above the standard maximum contribution limit. In 2010 and 2011 this was $5,500.

What are the limits? Where can I find more info? The limits can change every year, but you can find resources at the IRS website. In 2010 and 2011 the limit was $16,500 per year.