What is the maximum I can contribute to my 401k account?

 Eligible participants, as defined by your 401k plan’s plan document, may generally contribute to their 401(k) plan on a pre-tax basis, the lesser of $15,500 (2008) or 100% of compensation, unless you are eligible for catch-up contributions of $5,000 more (2008) for a total of $20,500. To be eligible to make a catch-up contribution, a participant must be at least 50 years or over at the end of the tax year.   Additionally, an Employer is not required to provide for catch-up contributions in any of its plans, so please contact your Plan Administrator to see if catch-up contributions are available.  

 The following table illustrates the maximum employee contributions for the calendar years 2008 to 2010.  (Note – the annual limits are subject to cost-of-living increases after 2010).

How much should I contribute per pay period?

 Your Plan Administrator should be able to calculate the amount you need to contribute to your 401k account in order to take advantage of the catch-up opportunity.  However, some Plan Administrators may have a policy against providing such calculations.  Generally, if you are paid on a 26 week pay schedule (per year), you would want to divide the “total annual contribution” by the # of pay periods. For example, for 2008 your contribution per pay period would equal ~$788 ($20,500 / 26 pay periods).  Depending on your Employer’s payroll provider, you may see this total contribution of ~$788 broken out between Employee contribution of ~$596 ($15,500 / 26 pay periods), and Employee catch-up contribution of ~$192 ($5,000 / 26 pay periods).  

 Employer match and catch-up contributions

 Some 401k plans will provide for the company to match a portion of the Employer catch-up contribution. The amount the Employer will match is determined by the Plan Administrator and should be documented in a plan policy.

 Excess contributions

 It is your (Employee) responsibility to monitor the total you contribute to ensure that the contributions are not more than the overall limit. If you contributed more than your allowable employee contribution for the year, you must notify the Plan Administrator by the date required by the plan document.  Additionally, you may request a distribution of the excess contributions or leave it in the plan, depending on the plan document. (Note: There are special tax rules and consequences for receiving distributions of excess contributions).   

 Victor Fuentes

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