401k Plans

The 401k plan is the the main form of retirement savings for over 61 million Americans. These employer plans hold an estimated 2.4 trillion dollars in assets for employees. 

Unlike traditional pension plans where retirement income is determined by final salary and number of years if service, 401k plans allow employees to determine how much they want to set aside for retirement. 

The Basics

The plans allow employees to put aside a portion of their salary each month tax free, and employers match a portion of their contribution.  Contributions are made through convenient payroll deductions and before withholding income taxes.   Employees then choose how to invest the money from a menu of stock mutual funds, bond and savings accounts. 

According to the Profit Sharing/ 401k Council of America, company retirement plans had an average of 17 investment options in 2003.

Each employer plan has document which regulates the plan.  The document is called the "summary plan description" or SPD.  The regulations will specify when you can contribute to the plan and to do withdrawals.

Contribution Limits

Deferrals to the account reduce the taxes you pay currently, so the IRS sets limits on how much you and your employer can contribute.  

For 2017, your combined pre-tax contributions made to employer-sponsored plan(s) you participate in during the year cannot exceed $18,000.  

Catch-up contributions

If you are above age 50 and are making the maximum Plan contribution, you may make an additional "catch-up" contribution each pay period.

In 2017, the maximum annual catch-up contribution is $6,000. Please note that you must make a separate election to take advantage of the catch-up contribution.

Total Contribution Limits

In the 401k, in addition to your deferral limits, your employers combined with your personal deferrals cannot exceed $53,000 based on 2017 limits.

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Contribution Limits

401k, 403b, 457 and Roth 401k

Tax Year          Under Age 50     Above Age 50               

    2016              $18,000         $24,000

    2017              $18,000        $24,000

 

Review the fund options in the plan periodically.  

Take advantage of any education and planning materials your employer offers.

Re-balance your portfolio.

Take advantage of the company match!

Don't overweight company stock.

Changing jobs?  You have options-make sure to rollover your plan to your IRA.  A direct rollover makes sense for most individuals.

Visit the RetirementThink Rollover Center...changing jobs or retiring, we'll help you understand your rollover options.