How much should I contribute to my plan?
- What are defined contribution plans?
- How do defined contribution plans work?
- How does the money get invested?
- What tax benefits do 401(k)s offer?
- Do I have to contribute to my plan?
- Why is a 401(k) such a good deal?
- When do I pay tax on a 401(k)?
- How is a Roth 401(k) different?
- What is a matching contribution?
- How does vesting work exactly?
- How much should I contribute to my plan?
- What if I can't invest the maximum right now?
- What if I need the money before I retire?
- What if I leave my job?
Given the plans' valuable tax breaks, it makes sense to invest the maximum if you can. There are annual limits. In 2008, if you are under 50 years old, you can contribute a maximum of $15,500. If you're 50 or older, you can make an additional catch-up contribution of as much as $5,000, for a total of up to $20,500.
Those contribution limits change annually to track inflation. The reason: Inflation will gradually reduce the value of a dollar, meaning you will need to contribute more dollars to have the same purchasing power.
