401(k) Roth Contribution Limits

by Michael Keenan ; Updated July 27, 2017
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Roth 401k plans are an alternative to the traditional 401k plan. Contributions to a Roth 401k plan are made through payroll deductions. You specify to your company how much money you want to contribute and the money is taken directly from your paycheck. You must also specify which investment option the company offers that you want the money put toward. The money is still included in your taxable income because Roth 401k plans use after-tax money. However, you are allowed to withdraw the money tax-free at retirement.

Annual Contribution Limits

The U.S. Internal Revenue Service puts an annual limit on how much you can put into your Roth 401k plan each year. The limit depends on your age and adjusts each year for inflation. For 2010, the limit is $16,500 if you are under 50 years old. If you are 50 or older, you can contribute an extra $5,500 for a total of $22,000.

Earned Income

In order to make a contribution to your Roth 401k plan, you must have earned income equal to or greater than your contribution. If your earned income for the year is below your annual contribution limit, your earned income total becomes your contribution limit. For example, if you were 55 in 2010 and had earned income of $18,000, which is less than the typical $22,000 contribution limit for a person 50 or older in 2010, your contribution limit for the year would be $18,000.

Employer Contributions

Employers are allowed to match contributions that you make to your Roth 401k plan, but the total cannot exceed the annual limit, which is adjusted for inflation annually. For 2010, the combination of employer and employee contributions cannot exceed $49,000. However, the IRS does not permit employers to put that money into a Roth 401k plan. Instead, the IRS requires that matching contributions be put into a traditional 401k plan. This money is not included in your taxable income the year it is contributed but will be taxed when you withdraw it.

Considerations

The contribution limit applies to both traditional 401k plans and Roth 401k plans cumulatively. This means that the $16,500 and $22,000 limits for 2010 count both traditional 401k and Roth 401k contributions toward the limit. For example, if your limit was $16,500 and you put $7,500 in a traditional 401k plan, you could only put $9,000 in your Roth 401k plan that year.

Warning

Not all employers offer a Roth 401k plan option. If your employer does not offer the Roth 401k plan, you cannot contribute. Some employers offer only a traditional 401k plan or no retirement plan at all. You cannot start a Roth 401k plan as an individual. However, if your income is low enough, you may be able to contribute to a Roth IRA, which offers very similar benefits.

About the Author

Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."

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