The 2009 inflation-adjusted limits for 401(k) and 403(b) defined-contribution plans are as follows:
- The 401(k) elective deferral limit goes to $16,500, up from $15,500.
- The “catch-up” amount allowed for those age 50 years and up increases to $5,500, up from $5,000.
- The overall annual defined-contribution plan limit goes to $49,000, up from $46,000. This usually comes into play when you have additional employer contributions.
- These numbers apply for both Traditional pre-tax and Roth after-tax contributions.
Maxing out pre-tax 401(k) contributions
$16,500 annually works out to $1375 per month. If you get paid bi-weekly that’s $635 per paycheck. But since this is gross income, if you are using pre-tax contributions (not the Roth 401k option*) your actual reduction in take-home pay will be less.
According to the calculators at PayCheckCity, if you are single with one allowance, earn a gross annual income of $60,000 per year ($5,000/month), and you live in a state with no income taxes, this works out to a reduction in your monthly take-home pay of $1,031. (It would go from $3,804 down to $2,773.)
You can also get to the same number by first finding your 2009 marginal tax rate. Since a such a person would be in the 25% bracket, taking 75% of $1375 is $1,031.
* If I were in the 15% tax bracket or lower, I would go with the Roth option (if available) because historically that is a low rate. Pay the low rates now, so you can avoid paying them later! For higher tax brackets, it depends on some personal variables like how much taxable income you expect to generate when withdrawing for retirement.