The 2010 401k Limits And Advantages For Tax Purposes

There are several options available to you if you are looking to save for retirement. Assuming that you are going to want to retain the current lifestyle that you live or possibly a better one when you retire, it is necessary to start saving money now. The money that you put back will earn interest giving you even more for your retirement. There are 401k contribution limits however; there are also tax exemptions to go with it.

A 401k is a more traditional type retirement account. Anyone who is self employed or their employer offers the retirement account can invest in one. Contributions, money put into the account, can be setup with a specific amount to automatically be taken out of your paycheck. Some employers offer matching contributions.

There are limits as to how much you can invest each year. These limits apply to all 401k plans, including Roth 401k. An individual under the age of 50 can contribute up to $16, 500. People over 50 are allowed to contribute $22, 000. These are the 2010 401k Limits for the coming tax year.

There are limits on withdrawals from these accounts as well. If you make a withdrawal and you are at least 59 1/2, remember that if you take too much out it will put you in a higher tax bracket. Other than that, you can withdrawal as much as you like.

When you make a contribution to a 401k, it is not taxable until you withdrawal the money. This is one of the major benefits of this type of plan compared to other investment plans.

When you invest money in a 401k, it is not taxable. The money invested also accrues interest the longer it is there. The only time you pay taxes is upon withdrawal of funds. So in the long haul, investing in a 401k plan is more beneficial to you.

401k plans earn compound interest. In other words, you earn interest on the interest. This allows you to save more money over a period of time. Again, contributions to this plan are exempt.

Choosing a safe investment is popular with 401k plans. In most cases, the person can choose which mutual funds, bonds or stocks to invest in. Slow and steady growth is what a 401k offers you.

The final decision for how you invest is up to you. There are companies available to help you with investing for your future. They are more than willing to show you the different options as well as offer advice on what to invest in and how.

There is a 401k plan that lets you make after tax contributions as well; the Roth 401k. The Roth 401k offers this. In addition, any withdrawals made from the account are tax free.

It is advisable that you take full advantage of the 2010 401k Limits and contribute as much as you can to this plan. If possible try to get as close to maximum allowable amount as possible. Not to contribute as much as possible is detrimental to you. The government offers the tax breaks on these plans in order to help out consumers.

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In addition to the many retirement plans like the 401k there is a kind of pension called the 412(i), which has some pros and cons. You can find more on it by visiting the site.

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