Before you start asking about your 401k employer contribution limits, you must keep in mind that it is also called a 401k match, because your employer “matches” your contribution. So, you need to make the elective deferral first, before you expect something from the company you work for. And the more you put in, the more your company contributes, too.
Your 401k employer contribution limits set by the IRS for 2011 are retained from 2011 – 6% of your gross salary. The IRS, or Internal Revenue System, is the US government office in charge of implementing tax laws. It has maintained the ceiling of all elective deferrals from the previous year due to a relatively minimal inflation rate.
However, the actual dollar value of your 401k employer contribution limits still varies according to the specifications in your plan. Most companies use the 50 cents-to-a-dollar match, while there are those who are more generous and offer a dollar-for-dollar match.
If your plan states that your company will give you 50% of the 6% maximum limit, it only means that for every dollar of your elective deferral, your company will give 50 cents to your 401k savings. For example, if you have a salary of $40,000 and your elective deferral reaches at least 6% of your pre-tax salary, you can expect your company to give $1,200 to your 401k savings for the year. If you are fortunate to be employed by a generous company that offers a dollar-for-dollar match, you can get up to 6% of your gross salary added to your 401k contributions, but that is if you do your part in elective deferrals. To be certain of what you should expect from your company, ask your company’s
designated 401k plan consultant.
Online investment advice expert Financial Engines reported that in 2010 39% of 401k plan holders do not contribute to their maximum elective deferral limit and not even enough to get their full 401k employer matching contribution. If you give only a measly amount to your 401k savings, you miss out on the tax shelter that the plan offers in the first place. In addition, if you keep putting off your 401k contribution, you also miss out on the free money that your 401k employer contribution limits allow.
This is why financial advisers always remind people to put in the maximum contribution they can afford for their 401k. If you don’t have investments and expenses that are more significant than a pre-tax retirement plan, it is just wise to maximize your 401k elective deferral limit. It will give you not just more retirement savings, but also free money through tax cuts and your employer’s contribution.