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401(k) Contribution Limits 2010 and Beyond

written by: Brian Nelson•edited by: Rebecca Scudder•updated: 8/2/2010

One of the best and easiest ways to save for retirement is to maximize the contributions to your 401k plan. The maximum amount you can contribute changes every year though. What is the maximum 401(k) plan contribution in 2010, and what will it be next year?

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    2010 401k Contribution Limits

    retirement-investing-401k-planning The IRS sets the maximum allowable 401k contribution and those for other 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 and posts them on

    For 2010, 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 tax-year 2010, the maximum amount you can invest in your 401k is $16,500. However, if you are 50 or older, you can contribute an additional catch-up contribution amount up to $5,500 for a total maximum 2010 401k contribution limit of $22,000.

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    Future Contribution Limits

    Starting in 2011, the maximum 401k plan contribution will be adjusted for cost-of-living increases. That means that the 2011 maximum contribution limits will be published in October of 2010.

    Also see taking out a 401k loan for other details.

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    Other 401k Contribution Limits

    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 compensated employees. The 401k earnings maximum compensation that can be used for contributions is $245,000. That does not mean that there is a 401k earnings maximum of $245,000 to be able to contribute at all, just that income above $245,000 does not count for 401(k) purposes.

    For those falling in the category of 401k highly compensated, the total contributions made to all accounts cannot exceed $49,000 for 2010. 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 2010 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.