401(k) Contribution Limits: What You Need to Know

Securing your financial future starts with understanding the 401(k) contribution limits and socking away as much money as you can.

May 24, 2014 at 1:00PM

The most essential step in saving for retirement is participating in your 401(k) plan. By acquainting yourself with 401(k) contribution limits, exploring the details of your plan, and making retirement savings a priority, you'll be one step closer to securing your financial future.

The ins and outs of 401(k) contribution limits
Eligible employees may contribute up to $17,500 to their 401(k) plan in 2014. The catch-up contribution limit for employees age 50-plus is $5,500. Every year the IRS releases the current 401(k) contribution limits, outlining the maximum amount we can invest in our 401(k)s. So far, the limit for next year has not been released.

The 401(k) contribution limit for employee salary deferral plus employer matching contributions is $52,000 in 2014. The amount of employee compensation that can be considered in calculating 401(k) plan contributions is $260,000. For small-business owners and the self-employed, total contributions to a participant's solo 401(k) also can't exceed $52,000 for 2014.

Safeguarding a solid financial future
You can ensure a healthy 401(k) by maximizing your contribution percentage. The average worker deferred 7% of salary into his or her 401(k) in 2012, according to Vanguard. By comparison, a 2012 Wells Fargo Retirement Survey found that only 12% of middle-class American workers were saving more than 10% in their 401(k) plans. Plans within BrightScope's 2013 Top 30 401(k) list averaged more than $12,500 in salary deferrals per participant last year. How do you stack up? Review your finances and, if possible, boost your contribution percentage.

Another way to protect your financial future is to know your employer's matching contribution. Many 401(k) participants take full advantage of their employers' match, but not everyone does. Roughly one-quarter of Vanguard 401(k) plans offer a maximum possible employer match of less than 3%, while the top plans provide employer matches up to 6% or more of pay. Get familiar with your employer's match, because not contributing enough money to receive the full match is leaving cash on the table.

Foolish final thoughts
Take the time to get your financial house in order. That starts with knowing the ins and outs of your retirement plan. Understand the 401(k) contribution limits and sock away as much money as you can. Carve out some time to revisit your elected contribution percentage and employer match, and make the necessary changes to ensure a prosperous future.

How to get even more income during retirement
Social Security plays a key role in your financial security, but it's not the only way to boost your retirement income. In our brand-new free report, our retirement experts give their insight on a simple strategy to take advantage of a little-known IRS rule that can help ensure a more comfortable retirement for you and your family. Click here to get your copy today.

Nicole Seghetti owns shares of Wells Fargo. Follow her on Twitter: @NicoleSeghetti. The Motley Fool recommends, owns shares of, and has options on Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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