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The IRS has officially reported the 2011 401k contribution limits, and similar to the 2011 tax brackets, they are no different from the 401k limits of 2010. What this means is that the maximum contribution limit is still $16,500 and the catch-up contribution is still $5,500.
What is a 401k plan?
For those who are not familiar with what a 401k is, a 401k is a retirement plan which the government recommends everyone to take advantage of. Reason being, money inserted in a 401k plan is not taxed. The only catch is that once an individual inserts money into their 401k, that individual cannot withdraw that money until he/she meets the legal age to withdraw the tax deducted money. If that individual does withdraw their money out of their 401k, there are of course consequences, which is why it is recommended to think twice before issuing money into a 401k. Generally, the idea is the sooner you take advantage of the plan, the more money you are technically saving for your retirement.
About Catch Up Contributions
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401k catch up contributions were designed to help those individuals who are close to retirement, but think they need to contribute more into their 401k. The government gives them more leeway by enabling them to contribute more of their pay checks into their 401k. That is, only if they are 50 years and older and if their employer permits this type of activity.
Rules for Multiple 401k Plans
If you have more than 401(k) plan — i.e., Roth 401(k) and standard 401(k), or multiple employers — the above 401k limits apply to the total amount regardless of the number of plans you participate in. The limits apply to your total combined contributions — specifically, your combined contributions across all plans cannot exceed the above limits.
Possible Restrictions
Despite the new limits the IRS has officially disclosed to the public, your employer ultimately grants how much you are able to issue into your 401k. So for instance, if your employer only allows you to insert 10% of your annual paycheck into your 401k and each year you earn about $80,000, the maximum you can insert into your 401k with your employer is $8,000. Generally, rules on inserting money into your 401k varies between employers and if you have questions, you should consult with your employer. But bottom line, the IRS restricts anyone from surpassing $16,500 in a single year.
