401K Maximum Contribution
The 401k maximum contribution limit changes every year, so if you are looking to contribute as much as possible and take advantage of your retirement plan you'll want to keep up to date with the new limits.
As of 2009 you can invest up to $16,500 if you are under the age of 50. If you are between 50 and 59 years and 6 months of age then you have an additional $5,000 catch-up investment you can make to prepare for your retirement.
If you are looking at this amount and thinking you'd like to add more to it than that, or you would like to diversify the money you are currently saving, you may want to look into a Roth IRA option.
With a traditional employer sponsored 401K plan money is taken from your checks before taxes are taken out and the money is deposited into your retirement plan. When you reach 59 and 1/2 years old and are able to start making withdrawals from the account you will then pay taxes on this money. If you have to pay the taxes eventually, why would you want to invest before taxes? The tax money that you smartly invested will grow and help you earn returns, giving you a healthier nest egg.
While the 401k maximum contribution is much higher than the Roth IRA option, and as I've mentioned above the 401K has many advantages, you may want to look at the IRAs as well.
A Roth IRA works a little differently, however. The first big difference is that an IRA, or independent retirement account, is set up by you, independently. You have more control of the account and pick your investments completely on your own, or with the guidance of the company you select to handle the account. A Roth account has the added difference that the money you invest is after taxes, which means that in retirement you won't have to pay taxes on your withdrawals.
With a mix of the two investments you'll be able to diversify your tax obligations and experience the best of both investment options.
As mentioned above the 401K maximum contribution is at $16,500 with a catch up limit of $5,000 for those over 50 years of age. Independent retirement accounts, as of 2009, have a limit of $5,000 with a $1,000 catch up.
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