If you are currently employed and are eligible to participate in your employer’s 401(k) plan, are you taking advantage of the employer matching contribution?  Why not take advantage of “free” money from your employer and at least contribute up to the percentage that your employer will match?  For instance, if your employer matches $0.50 on the dollar up to eight percent, contribute at least 8% and you will have a total contribution per year of 12% of your salary.

There is an annual limit on the amount an employee can electively defer as a contribution to their 401(k) plan, but this limitation does not include the amount that your employer can contribute as a matching contribution.  In 2009 and 2010, an employee is allowed to defer up to the lesser of 100% of eligible compensation or $16,500.  If you turned 50 during the year or are older than 50, you can make an additional catch-up contribution of $5,500 for a total employee contribution of $22,000.

Self-employed individuals also have retirement vehicles available which will enable these individuals to save more money for retirement than a traditional IRA or Roth IRA, and in some instances can reduce your taxable income for the tax year by this amount.  For instance, you can contribute to a SEP IRA, SIMPLE IRA or a solo 401(k).

If you have any questions or would like more information, please contact:

Mary Erickson

Posted in