2009 401k Maximum Contribution

This is the maximum amount you are allowed to contribute to your Individual 401(k) account per year as set by the federal government. In 2009, the maximum contribution to an Individual 401(k) is $49,000 (an increase of $2,000 over 2008) for individuals under 50, and $54,500 for those 50 and over. Self-employment income of $162,500 or more is required to qualify for the maximum contribution in 2009.

If you earn less than $162,500 in 2009, your maximum is calculated as follows: First, as the employee, you are able to contribute up to $16,500 in 2009 to your Individual 401(k) or 100% of your self-employment income, whichever is less. For individuals age 50 or over, an additional $5,500 catch-up contribution increases this portion of your contribution to $22,000, but still limited to no more than 100% of your earned income. Second, you are allowed employer contributions – even though self-employed people are fact their own employee. Employer contributions, for the self-employed, are limited to an additional 25% of adjusted net business profits, up to the maximum total amount allowed per year.

As an example, consider a 25-year-old self-employed person with an net income of $40,000 per year. They would be able to contribute:

• $16,500 as an employee contribution
• $7,434 as an employer contriubution (This is 25% of adjusted net income $29,739. Adjusted net income is calculated as net business income of $40,000 – deduction for Self-Employment Tax of $2,826 divided by 1.25.)
• $23,934 Maximum contribution for 2009

It is important to note that you may be subject to additional contribution limitations if you participate in an additional retirement program through another employer. For 2009, total retirement plan contributions are limited to $49,000 or 100% of your total compensation for the year ($54,500 if age 50 or older). This includes contributions to your Individual 401(k) as well as any other employer plan. It also includes profit matching and employer contributions. Contributions to a Traditional IRA or Roth IRA are not included in this limit. Catch-up contributions for individuals over 50 are also not included in this limit.