Question: How Much Should I Be Contributing To My 401k Plan?

Answer:  The maximum contribution to a 401k plan in 2014 is $17,500 per year.  For participants who will turn 50 years old or older in 2014, there is an extra allowance of $5,500 called a “catch-up” provision.  This brings your total contribution limit to $23,000 in 2014 and this is over and above any contribution your employer may make such as a matching contribution.  Another way to approach your contribution is to designate a percentage of your pay.  You may have to start small at first, but it is very important that you contribute at least the amount necessary to receive ALL the matching dollars your employer is prepared to contribute to your Nestaccount.  Don’t leave any money on the table when it comes to the company match.  Make it a priority to find out how the matching formula works and contribute enough to receive it all.  Then determine to increase your contribution every year until you are contributing a minimum of 10%, preferably 12%, and if you can 15% of your pay every payday.

 There may be opportunities in some years to contribute more and you should seize those opportunities to max out your contribution.  For example, perhaps your spouse is bringing in a second income that allows one or both of you to contribute more to your retirement investment.  After the children graduate from college you may want to focus hard on your retirement nest egg and ramp up your contributions.  Don’t forget to set aside some or all of a company bonus to increase your retirement account.  And watch for changes annually because these maximum limits are now indexed to inflation.

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