The IRS sets the maximum allowable contribution to various types of retirement plans and pension plans, unless the limits were specifically set in the law passed by Congress. For plans with contribution limits that are adjusted for inflation, or with cost-of-living adjustments, the IRS releases the amounts for the upcoming year in October. So, the pension plan limitations for 2010 will be released in October of 2009.
For 2009, the annual contribution limits for a 401(k) plan are not completely straightforward for two major reasons. One is that 401k plans allow for a catch-up contribution for employees who are age 50 or older. The second is that there are rules which require a 401(k) plan to have a certain ratio of investments between highly-compensated employees (and certain owners) and non-highly compensated employees.
Assuming that your 401k plan meets the requirements to avoid a “top-heavy” designation, then the only concern is catch-up contributions.
For 2009, the maximum amount you can invest in your 401k is $16,500. However, if you are 50 or older, you can contribute an additional amount up to $5,500 for a total maximum 2009 401k contribution limit of $22,000.
Here is a link to the IRS 401(k) Resource Guide if you want all the gory details: IRS Official 401(k) Information
Starting in 2010, the maximum 401k plan contribution will be adjusted for cost-of-living increases. That means that the 2010 maximum contribution limits will be published in October of 2009.
While most Americans will never be subject to them, there are additional rules and regulations for 401k contributions for certain individuals. These additional rules affect primarily business owners, and highly paid employees, those with compensation over $245,000 annually.
For these individuals, the total contributions made to all accounts cannot exceed $49,000 for 2009. This includes all employer contributions, matching, profit sharing, and the employee’s own contributions. For example, if an employee received a $25,000 profit sharing bonus in their 401(k) and the plan has a one for one match, the employee cannot contribute more than $12,000 during 2009 and still get the company match.
$25,000 bonus + $12,000 contribution + $12,000 match = $49,000.
In addition, contributions made to retirement accounts may never exceed 100% of compensation. This prevents employees from earning a small taxable salary and collecting a huge tax-deferred employer contribution to their 401k or other retirement plan.
If you want to contribute more toward your retirement, you may want to consider a non-deductible IRA contribution.