Maxing Out Your 401K Contributions

Maxing out your 401k contributions is one way to certainly get your nest egg up to a respectable size. The contribution limit changes every year, in 2010 the limit is set at $16,500 for those under fifty years old. For people between the ages of fifty and fifty nine and a half, there is an additional $5,000 catch up contribution to help those who realize later in life that they need more funds for their retirement.

Sadly, this is way too many of us, as recent studies have shown most of us are not saving anywhere near enough.

If you are one of the few who have been saving for a while and are even reaching those limits, good for you! Saving for your retirement is one of the best things you can do for yourself and your future.

If you find yourself regularly maxing out your 401k contributions, you should consider some of your other investing options, like a Roth IRA. This is very similar to your experience with your employer sponsored account, but lets you diversify your tax obligations in retirement a bit, and gives you the opportunity to span out your investments.

While a traditional account takes your contributions from your income before taxes are taken out, a Roth IRA takes your contributions from your income after taxes are taken out. This means that while you would traditionally pay taxes when you make withdrawals in retirement, with a Roth IRA you have already paid them. If you do this with the account you already have then you have diversified your tax obligations in retirement a bit. This also gives you the opportunity to have more control over your investment options with this account and see how things work out.

Maxing out your 401k contributions is a great way to build up your savings for retirement, but it also means you should consider what other options are out there for you to diversify a bit.