If you’re wondering what’s so special about a 401K, I’ll give you some key points as to why you may want to participate in a plan offered by your employer.
4 Benefits of A 401K
- The money you contribute to a 401K plan is tax deductible for the year that the contributions were made. In other words, the funds will not count toward your gross income, lowering your taxable income, therefore allowing your savings to grow faster.
- Set it and forget it. Automatic deductions taken from your paycheck are easy. Just contact your employer’s payroll department, fill any necessary paperwork or submit online to get started. Choose the percentage that you’ll want to contribute, select from the investments offered by your employer.
- If your employer offers an employer match, don’t pass that up. The employer match is free money. For example, a 401K plan might provide that an employer will contribute fifty cents for each dollar that a participating employee chooses to contribute under the plan.
- You can contribute more to a 401K than an IRA.
Maximum contribution to a 410K:
- For 2019 the contribution limit is $19,000.00.
- For 2020 the contribution limit is $19,500.00.
401K Compensation Limits:
- $280,000.00 for 2019.
- $285,000.00 for 2020.
Catch up Contributions
If you are age 50 and over at the end of the calendar year, you can take advantage of catch up contributions. The additional contributions you can make are as follow:
- $6,000.00 in 2019
- $6,500.00 in 2020
If you participate in 401k plans with multiple employers, it is up to you to keep track of how much you contribute. Contact your plan administrator to find out whether your plan allows catch-up contributions and how the catch-up rules apply to you.
For more information on a 401k, contact your company benefit department or go to IRS.gov.