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Retirement: Maximum 401(k) Contribution Raised for 2015

In a statement from the Internal Revenue Service (IRS) under plan contribution limits, 401(k), as well as other retirement plans will be increased for 2015. The elective contribution limit next year for employees who participate in 401(k) plans will rise from last year’s amount of $17,500 to $18,000.

The amount of the increase is what employees are allowed to contribute each year on a tax-deferred basis. However, the amount applies to a number of other retirement plans as well for both government and not-for-profit employees.

Of special note to baby boomers, also increasing for 2015 is the “catch-up” contribution intended for employees 50 years of age or older, which will also go up to $6,000, an additional $500. This means that people within the specific age group have the opportunity to contribute $24,000 in all, not including matched employer contributions.

Regarding annual limits for IRAs, these will stay at $5,500. For this, the catch-up contribution is set at $1,000 for people 50 years of age and older. The latest data received from the Employee Benefit Research Institute (EBRI) shows that 53.5% of holders of IRA plans, contributed the maximum allowed annually.

Unfortunately, data pertaining to 401(k) plan contributions is not available since a large number of companies have an established cap that falls below the federal limit.

In a 2013 survey by Mercer, a benefits firm, participants of the average 401(k) plan who were between the ages of 50 and 64 expected to contribute $6,673. However, those same individuals thought $8,304 was the annual maximum, almost 50% of the actual limit allowed for that year.

Under the new planned contribution amount, some people may not need to make changes if they know the real limit but as experts point out, a foundation of knowledge is everything and on which the best decisions are made.

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