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What Is the Maximum Amount of Pay I Can Contribute to My 401(k) for Retirement?

By    |   Sunday, 14 June 2015 12:29 AM

Investing in a 401(k) plan remains one of the most effective ways to save for retirement, as workers can save and invest a pre-tax portion of their paycheck. The program is company sponsored, with financial contributions often matched by employers.

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The 401(K) gained popularity in the 1980s as it began to replace pension plans, according to The Wall Street Journal. Employers preferred them because they were more cost-effective than the escalating costs associated with pension plans. They were named after the section in the tax code that oversees them.

Individuals can choose how much to invest each year, depending on their needs. However, IRS regulations capped 401(k) contribution at $18,000 for 2015, a $500 raise from the previous year. People age 50 and older can contribute an additional $6,000.

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Spread over 52 weeks, that amounts to a contribution of $346 per week, tax-free. Taxes aren't paid until the funds are withdrawn. That typically starts at age 59.5, when the owner is likely in a lower tax bracket.

There is no minimum amount, though employees should at least contribute enough to benefit from the company match.

Workers can invest more to a 401(k) than an IRA, which is an individual account apart from a company-sponsored retirement plan. The IRS limits IRA contributions to $5,500 with a catch-up contribution limit for people age 50 and older of $1,000. Also, many 401(k) plans allow employees to take out a loan based on their investments or withdrawal funds for unexpected hardship.

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Investing in a 401(k) plan remains one of the most effective ways to save for retirement, as workers can save and invest a pre-tax portion of their paycheck.
retirement, 401k, contribute
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2015-29-14
Sunday, 14 June 2015 12:29 AM
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