Money Girl explains employer matching and 401(k) contribution limits.
Q. This year I plan on maxing out my 401(k) by contributing $17,000. However, my employer matches contributions up to 3% of my salary. Does that mean the total of both of our contributions must not exceed $17,000?
A. No, you can always contribute the allowable maximum for retirement plans set by the IRS each year, regardless of the amount of matching funds your employer also contributes.
For 2012, the employee contribution limit is $17,000. So, let’s say you earn $50,000, max out your 401(k), and get a 3% match. You would contribute $17,000 and your employer would contribute $1,500 ($50,000 x 3%), for a grand total of $18,500 in your retirement account—not bad!
And here’s good news: For 2013, you’ll be able to put away even more for retirement due to an increase in the cost-of-living index. The new limit will be $17,500 for those who participate in a 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan. However, the additional catch-up contribution for workers age 50 and over remains unchanged at $5,500.
401k Nest Egg photo from Shutterstock