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Overview of Individual Retirement Contribution Limits

 

Individual retirement plans are perfect for anyone who is seriously planning their retirement. These plans are highly popular and the higher the amounts of tax-deferred income invested, the more lucrative the returns will be. However, the national tax authority has imposed limitations on the amount of a person's income that is allowed to be invested on an annual basis. There can be three forms of limits set on an employee's retirement plan, the Government's limit, the employer's match limit and the employer's overall limit.

 

Government Limits

The Government's limits are basic amounts that slightly increase from year to year. For those over 50 years of age, an additional catch up amount, usually of $5,000, is permitted. A few years ago, the limits were at a maximum of $15,000. Over the years, the limits upped to $15,500 and later to $16,000. The catch up retirement plan limits of $5,000 are allowed to give older savers the chance to make the most of the benefits of compound interest. Find your good 401k safe harbor match.

 

It costs companies to run the retirement plan. Some companies match dollar for dollar the amounts that their employees contribute. The company may have an overall limit that can be less but no more than the Government's limits. Companies that match the amounts may need to impose a restriction on the amount of funds that they are willing to donate. Employer contributions are not subjected to the normal retirement plan limits but are instead limited to 6% of the pre-tax compensation. About 5 years ago, the total contribution limits were limited to $45,000 while employer contributions were limited to 100% of the employee investments. It is the smaller amount of the two that actually applies to any individual case.

 

Compensation limits affect highly paid employees on similar retirement plans from the best small business 401k providers. However, the individual retirement plan compensation limits only depend on the employing company offering such a plan. Highly compensated employees may be subject to additional contribution limits depending on the employer's overall participation rates. The total of the deferrals and contributions made can be up to 125% of the average deferral percentage of all eligible non-highly compensated employees annually. Adjustments to the retirement plan limits over the years depend on the cost of living.

 

An individual retirement plan is one way to go when planning for your retirement. Remember the guidelines given here to get you started on saving for your retirement. Retiring with a healthy cash balance may give you the chance for a life of luxury in your golden years. Visit http://www.huffingtonpost.com/tag/financial-advice/ and read on details about financial advice.

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