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Home » 401K, Workplace Finance

IRS Maximum Allowed 401k Contribution Increases in 2009

Last updated by on 28 Comments

Update: the 2014 maximum 401K contribution has since been released since this post was written. What follows is for 2009.

The IRS maximum allowed 401K contribution will increase from 2008’s $15,500 to $16,500 in 2009 (for those over 50 years old, the 401k catch-up contribution increases to $22,000). If you’re looking for other years, here are updated posts and maximums for you.

What Does this Mean for you?

If you are privileged enough to be able to max out your 401K in 2009, and you dollar cost average your contributions over the entire year, you may need to adjust the percentage that you contribute per pay period from your 2008 levels.

How do I calculate how much I need to Contribute to Max out my 401K in 2009?
maximum 401K contribution

Simply take $16,500 divided by your total salary. For instance, if you make $50,000 per year (including bonuses), then take $16,500/$50,000. You end up 0.33 or 33%. In this instance, this means that you would have to work with your HR department or more likely, your 401K administrator, to change your contribution to 33% of each paycheck in order to max out your 401K for the year.

Why is Right Now a Good Time to Change my 2009 401k Contribution?

The reason I tell you now is because often times it takes at least a full payroll cycle before your new contribution % takes effect and for a lot of people that means they’d have to change right now if they want the new % to take effect by Jan. 1. Of course, you can change your contribution % multiple times at any point during the year – but for those who want to set it and forget it for the year, right now is the time.

For those who can AFFORD to do it, maxing out your 401K can rarely be seen as a bad strategy. If your employer matches you up to the max, it may especially be to your benefit to take advantage of the free money.

401K Contribution Discussion:

  • Did you max out your 401K this past year?
  • Do you plan on maxing out your 401K in 2009? 2010
  • Does your employer match up to the max, or only to a certain lower percentage? If lower, what percentage?

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I am G.E. Miller, & this is my story. My goal is financial independence ASAP. If you share that goal, join me & 7,500+ others by getting FREE email updates. You'll also find every post by category & every post in order.


28 Comments »
  • Trevor says:

    I wish they matched to the max. They 100% match up to 6% of my salary.

  • Broke M.B.A. says:

    Hello G.E.,

    Nice post. I definitely agree that people should be taking care of this now in order to make sure it goes through payroll before January 1. I do have one question which you may have answered in your last sentence. I just want to make sure I interpreted your statement correctly.

    Does the employer match count towards your $16,500.00? Or are you allowed to contribute the full $16,500.00 as well as any match your employer is able to give?

  • G.E. Miller says:

    @ Broke – The IRS maximum is how much YOU personally contribute. Anything your employer matches is just frosting on the cake – they could match you with $50,000 if they wanted and it wouldn’t count towards your max.

  • allen says:

    i WISH i could afford to match up to that limit: You’re still limited to 50% of your income aren’t you? Anayways, that would be over 50% of my income. lol

    My work matches dollar per dollar up to 3%, and $.50 on the dollar from that to 6%. So, i do 7% (it’s all i can afford, as i’m single, and on my own).

  • Broke M.B.A. says:

    Thanks G.E. So how do you recommend convincing my employer to drop 50k into my 401(k)? :)

  • Maxing out my 401k is a dream right now. I’m still working on maxing out my Roth IRA. Right now I’m only doing enough 401k to get the match. 6% for me, 2 of the 6% in company stock by mandate.

  • financialgalnowmom says:

    the weakonomist:

    I may be off base but I believe it’s better to max your 401k before your Roth IRA. The money is taken out of your paycheck before it is taxed. Your Roth is money that you max out 2nd.

  • allen says:

    @financialgalnowmom:

    Ideally, you have a balance of pretax, and post tax investments, to cover your bets for the future. The general thought is:

    1) match your companies matching 401(k) investment
    2) once you’ve reached that, anything extra you can invest, place into a ROTH, up to the max/year.
    3) if you STILL have more money you want to put into investments for the far future, then place into your 401(k) again.

    You’re going to get taxed when you take your 401(k) out, but not when you take your ROTH out. (also, you have ALOT MORE CHOICES when it comes to a ROTH).

  • RS says:

    I’m a year 1/2 out of college and finally have a nice cushion saved up for an emergency, surprise car repair, unexpected layoff, etc. This year my goal is to start investing in my 401k, which is matched 100% by my employer up to 5% of my (modest but sufficient) income.

    I just realized I may be able to bump myself into a lower tax bracket if I contribute somewhere around $2000. Is it too late to start contributing a large amount of my income now to make the lower tax bracket by April 15?

  • G.E. Miller says:

    Yes, too late for the 401k, however, you can still put money into a traditional IRA up until the deadline and it would have the same impact that you’re looking for (count against 2008 taxes).

  • Jon says:

    @ G.E. Miller – I think you might be wrong with your “they could match you with $50,000 if they wanted and it wouldn’t count towards your max.” comment. While it would not count towards your personal maximum contribution, they would not be allowed to contribute that much. An employer can only “gift” up to a maximum of 6% of your total pre-tax contribution. They are allowed to match 100% of your contribution if they choose, but I don’t think they can go much beyond that. There are several other rules for this that pertain to “highly compensated employees”. In otherwords, for 99.999% of the people out there, the maximum contribution you could put towards your 401k annualy would be $33,000 (16,500 from you, 16,500 from your employer).
    I am extreemely fortunate to have an employer that matches 100% up to the maximum contribution. It is a big sacrifice to max out my 401k but I do it every year because it is even harder to pass up the extra free $15,500 (16,500 this year) that my employer will contribute. They even make is all vested immediately…I hope it lasts. It is fun to look at what a total contribution of $33,000 every year looks like at a modest ROR 36 years from now (I am 24).

  • G.E. Miller says:

    @Jon – wow, 100%? Where do you work?

  • Jon says:

    A company called EXCO Resources, Inc. They are based out of Dallas. The company has grown so fast in the last two years that I fear they won’t be able to keep this good thing going for too much longer. We have doubled in employees in the last two years. Of course, I am sure that 90% of the people in the company do not max out their 401k because they simply can’t afford it or do not make it a priority (a big mistake with such a great deal if you ask me!).

  • jerry says:

    is anyone aware of an employer mandating contributions to a 401k & defined contribution plan of 25%??? this company first tells us we have to sign up and we have no say on our own retirement money, does something sound wrong with this??

  • Jon says:

    Yes, something sounds very wrong with it. Put in as much as you can afford (within the limit) but your employer can’t force you to.

  • Neil Young says:

    Thanks for the valuable information.

    While it may not apply to most people, isn’t there an absolute total contribution maximum (combined company and individual) mandated by the IRS? I don’t know if they changed the maximum, but I thought it used to be a bit over $40K per year.

  • jeff says:

    yes there is a max total contribution class.

    max individual contribution: 16,500
    max contribution from you and your employer: 49,000

    hope this helps

  • H.Z. says:

    Jerry that is wrong. Way wrong.

    Your employer, depending on their size and the number of highly compensated people vs. not, has to pass certain tests to validate it as a 401k. One of those tests says those who are highly compensated cannot on average contribute more than 2% of the non-highly-compensated employees. For instance, Max makes 150k per year and contributes 10% of his salary towards the 401k. Bob and Larry each make 50k and contribute 5% of their salary. In this case Max could only contribute 7% of his salary. Your employer may be looking to push this %. At the end of the year if the group fails this test there are certain remedies available, one of which is to offer a profit sharing. There are a lot of rules and I certainly don’t know them well enough to keep going, but you need to review your 401k plan documents, they are available to you, or discuss with your broker.

    Employers, I do this, can encourage employees to sign up for a 401k, its to their benefit as far as i’m concerned, but they cannot force them. As an aside, your 401k has an administrator, this may be your employer – they have a fiduciary duty to offer viable options within the 401k; this may be a money market fund, company stock, misc. mutual funds. When the 401k was set up the options within needed to pass a test as well. Thats not to say the options are the best for you, you need to do your homework, talk to a broker if need be.

    Sorry this is a mouthfull, but its late and my thoughts are rambling! Check out your plan documents, talk to your broker. Signing up for a 401k is a good thing, but don’t be forced into something you dont want to do. Or be deceived into thinking you MUST join the 401k.

  • LES BROWN says:

    I AM OVER 50 YEARS OLD. WHAT IS THE MAXIMUM CONTRIBUTION THAT I CAN MAKE IN MY 401K AND A TRADITIONAL IRA. MY EARNED INCOME IS ABOUT $70,000 A YEAR.

  • James says:

    This article is sort of misleading. It’s not always best to do all your investing via 401k, especially for most 20-somethings. The rule of thumb I go by is to first contribute the minimum amount possible to obtain the maximum company match. Then take the rest of your investment money and pump it into a Roth IRA. 20-somethings typically are trying to save up for a house. With a Roth IRA, you’re allowed to take out contributions PLUS earnings to put toward a down payment on your first home (must have the Roth open for at least 5 years). What’s that you say? Roth IRA is taxed before investment? Well, think about mortgage insurance. If you own less than 20% equity in your house, you’re forced by law to pay mortage insurance, which can be up to around $1500 per year on a $200,000 home.

    And mortgage insurance is just one reason to start a Roth IRA. You can also withdraw contributions & earnings if you have a hardship.

    And, in case you didn’t know, you can also withdraw contributions at any time, for any reason without penalty. Can’t do that with a 401k unless you want to take a 30%+ hit!

    Stay liquid. Put the extra $ in a Roth.

  • VH says:

    In regards to being required to sign up for a 401K –

    Automatic enrollment in a 401(k) plan. A 401(k) plan can have an automatic enrollment feature. This feature permits the employer to automatically reduce the employee’s wages by a fixed percentage or amount and contribute that amount to the 401(k) plan unless the employee has affirmatively chosen not to have his or her wages reduced or has chosen to have his or her wages reduced by a different percentage. These contributions qualify as elective deferrals. This has been an effective way for many employers to increase participation in their 401(k) plans. These contributions qualify as elective deferrals. For more information about 401(k) plans with an automatic enrollment feature, refer to Income Tax Regulations section 1.401(k)-1(A)(3)(ii).

    On the IRS website (emphasis added) http://www.irs.gov/retirement/sponsor/article/0,,id=151800,00.html

  • Freedom says:

    401K problem employer. I think so

  • JoesMoney says:

    @ Trevor – a 6% match is still not bad. I wish my employer would match everything too. I get the same 6% as you.

  • jason says:

    my employer matches 100% up to 12.5% of my salary… beyond that i put my other investments into a roth

  • Harry S. says:

    I have a regular 401k plan. Is it possible to make direct contributions to it when I have extra money (within the limits), on top of what’s taken out regularly?

  • Ank0288 says:

    I am turning 50 this year. Do I qualify to contribute the extra $5,500 this year?

  • Phil Grindel says:

    We are so happy for our 401k retirement plan. Quite better than the old retiement plan I used to have.

  • Dulce says:

    Don’t you have to take into account how many paychecks you get a year in order to calculate the percentage that will get you to max out?

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