2011 401k Contribution Limits: Key Takeaways

In October of 2010, the IRS released updated guidance on 401k tax rules for 2011, including information on the 401k contribution limits for 2011. However, scanning through the IRS’ website is a nightmare, so here’s what you need to know for 2011:

1. Generally speaking, what was true in 2010 is true in 2011.  Because there were no cost of living adjustments, basically none of the limits have changed for 2011.
2. The limit on contributions to a traditional or Safeharbor 401(k) plan is unchanged at $16,500 for 2010 and 2011 for those under 50.
3. If you are 50 or older, you may be eligible to contribute an extra $5,500 to your 401(k) or an extra $2,500 to your SIMPLE 401k plan.
4. Thus, doing the math, if you are 50 or older at the end of 2011, your tax deductible limit on 401k’s is $22,000 and for your SIMPLE IRA is $14,000.
5. If you contribute to multiple retirement plans, your contributions may be combined across those accounts.  For instance, if you have a traditional IRA and a 401k, you will likely not be able to deduct from your taxes more than $16,500 between the two plans if you are under 50, or $22,000 if you are 50 or older.
6. If you contribute to a SIMPLE 401k plan, the limit is $11,500 for 2010 and 2011.
7. Verify with your plan to make sure that your plan does not impose other limitations on what you can deduct.
8. You can’t contribute more than you make or have more than $49,000 in contributions between all of your accounts (including your employer match).
9. Your income above $245,000 can’t be considered for an employer match.