Did you contribute the correct amount to your 401k in 2007?
Have a question as to whether you exceeded the 2007 401k contribution limit last year? There are specific tax ramifications for exceeding the lawful contribution limit which you want to avoid. This article will enable you to determine if last year's contributions were within the allowable limits.
While 401k retirement plans can be a great tool in your retirement portfolio, they are guided by a set of strict laws that are enforced by the federal government in the form of the Internal Revenue Service. While those words are wont to strike fear the in the hearts of Americans across the nation, never fear we will make sure you have contributed within the guidelines of the law.
The maximum allowable contribution to your employer's 401k program is governed by two rules. You must choose the lesser of these two, as this will be your personal allowed limit.
Since 401k plans are usually employer-sponsored, your company sets forth the rules which govern the plan's administration. Therefore, any limit imposed by your company supersedes the limit imposed by the IRS.
Some companies have no limits in place, in which case the maximum of $15,500 for 2007 stated by the IRS will be your de facto contribution cap. However, other businesses impose various limits, some are dollar amounts, while others are a percentage of your gross pay.
So, for example, if you earn $60,000 and your company imposes a contribution limit of 20% your gross annual pay, your limit will be $12,000. If you contribute the federally mandated limit of $15,500, you will in fact be $3,500 over the legal amount for your employer-specific 401k retirement plan, and as such case could be subject to a 6% overage tax on the amount above the acceptable contribution amount.
Further, we must consider the possibility of a catch up contribution. If you are over the age of 50, you are allowed to add $5,000 to your maximum contribution limit as determined by the above rules. Therefore, in the above scenario, if you were over 50, you could contribute $17,000 rather than $12,000.
However, there is another scenario not bound by the above rules. If you have a single participant or solo 401k that is not bound by an employer standard, as you are a business owner in which you are the sole employee, a entirely different set of (much higher) limitations pertain to you. To see these specific amounts, and if a single participant 401k would be right for you, see the article entitled the same on the right hand side of this page.
Hopefully, you now know if the contribution you made last year to your 401k falls within the boundaries established by law or by your company. Good luck as you save for your retirement future and security!
Disclaimer: The above article is for informational purposes only. For tax advice, consult a certified tax professional.
While 401k retirement plans can be a great tool in your retirement portfolio, they are guided by a set of strict laws that are enforced by the federal government in the form of the Internal Revenue Service. While those words are wont to strike fear the in the hearts of Americans across the nation, never fear we will make sure you have contributed within the guidelines of the law.
The maximum allowable contribution to your employer's 401k program is governed by two rules. You must choose the lesser of these two, as this will be your personal allowed limit.
Since 401k plans are usually employer-sponsored, your company sets forth the rules which govern the plan's administration. Therefore, any limit imposed by your company supersedes the limit imposed by the IRS.
Some companies have no limits in place, in which case the maximum of $15,500 for 2007 stated by the IRS will be your de facto contribution cap. However, other businesses impose various limits, some are dollar amounts, while others are a percentage of your gross pay.
So, for example, if you earn $60,000 and your company imposes a contribution limit of 20% your gross annual pay, your limit will be $12,000. If you contribute the federally mandated limit of $15,500, you will in fact be $3,500 over the legal amount for your employer-specific 401k retirement plan, and as such case could be subject to a 6% overage tax on the amount above the acceptable contribution amount.
Further, we must consider the possibility of a catch up contribution. If you are over the age of 50, you are allowed to add $5,000 to your maximum contribution limit as determined by the above rules. Therefore, in the above scenario, if you were over 50, you could contribute $17,000 rather than $12,000.
However, there is another scenario not bound by the above rules. If you have a single participant or solo 401k that is not bound by an employer standard, as you are a business owner in which you are the sole employee, a entirely different set of (much higher) limitations pertain to you. To see these specific amounts, and if a single participant 401k would be right for you, see the article entitled the same on the right hand side of this page.
Hopefully, you now know if the contribution you made last year to your 401k falls within the boundaries established by law or by your company. Good luck as you save for your retirement future and security!
Disclaimer: The above article is for informational purposes only. For tax advice, consult a certified tax professional.
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