| 401(k) Tip |
- Your employer lets you contribute a percentate of your salary.
- The government sets a dollar cap on contributions.
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As you decide how much of your pretax income you’ll contribute to your 401(k), you have to stay within two sets of limits: those set by the federal government and those set by your employer.
- The government caps your annual contributions at a dollar amount—$15,500 in 2008. If you’re 50 or older you can make an additional $5,000 contribution in 2008, for a total of $20,500. The annual contribution is increased periodically to reflect increases in inflation.
- Your employer may limit your contributions to a percentage of your salary. Typically, that cap is 10% or 15% of your gross income, though it may be more or less. You can't contribute more than the percentage of your pay that your employer lets you add to a 401(k) each year, even if that means you can put away less than the government's cap.
- On the other side of the scale, your employer may require a minimum contribution of 1% or 2% from any employee who wants to participate in the plan.
| A Bit Here, A Bit There You usually contribute a percentage of your compensation, or pay, to your 401(k). Depending on your job, your compensation may include wages, salary, overtime, commissions, and fees for professional services. |
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