How Much Can I Contribute to My 401k?

How Much Can I Contribute to My 401k?

One of the questions that I get a lot is, “How much money can I actually contribute to my 401k?”

The answer to that is a little bit more complicated but I’m going to give you the loose guidelines, if you will. The basic guideline is this:  You can put away, as an individual, $16,500 a year into your 401k. Now, if you’re age 50 or older, you’re able to do a catch-up of an additional $5,500 per year into your 401k.

Now, where this is not going to quite fit into place is, let’s say you’re working for a smaller employer that has a 401k. If your company has failed what is called a “top-heavy test” on the 401k and you are what they define as a “highly-compensated employee”—and a highly-compensated employee is an employee who makes more than $110,000 a year from that company—then you may not be able to actually put in the maximum amount.

Now, if you fall into this category, you probably already know it because your employer has already told you, “hey, we’ve actually failed our top-heavy test. You’re not going to be able to put all of that money in each year”, or maybe each year you get a notice from your HR Department saying part of your money is being returned to you because you’re not able to put in that amount of money. You probably know if you’re in that situation.

There are actually ways to combat this situation, so if you find yourself in that situation at your company, make sure you contact a financial planner like myself who can help you with that and show you some of your alternatives. And there are even ways to restructure the 401k so you don’t have to worry about that, but not everybody’s going to want to go for some of those changes.

Again, the average employee, $16,500, and if you’re 50 or older, that catch-up provision of an additional $5,500. I hope that helps.

I’m Pete Mitchell, and I look forward to giving you more information on the markets and investing later.