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401k – How Much Should You Contribute? Budget Calculators Can Help Determine Best Percentage Of Your Income - Part 5

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401k – How Much Should You Contribute?  Budget Calculators Can Help Determine Best Percentage Of Your Income - Part 5

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(Best Syndication) The amount you can contribute to a 401k may depend on how much your employer will allow you to contribute. Typically, you can put up to 15 percent of your salary, but if the employer has a lower threshold, you can always lobby for an increase.

The total amount allowed under Internal Revenue Service (IRS) rules for 2006 is a combined contribution of $44,000. This includes both what the employee and the employer can contribute combined. Since the tax on the money is differed, it behooves the employee to contribute the maximum possible.

According to the IRS website, “These deferred wages (commonly referred to as elective deferrals) are not subject to income tax withholding at the time of deferral, and they are not reflected on your Form 1040… since they were not included in the taxable wages on your Form W-2.” The website How Stuff Works says that you can contribute up to $44,000 or 100 percent of your salary, whichever is less.

According to the report, there are some things you should consider. Is the economy good? Is your job stable? Are they laying people off in your industry? If this is the case, it may be prudent to have a little more money in a more accessible savings account, like a bank account. Most experts recommend you have at least three months of living expenses in the bank or easily assessable at all times.

But if the opposite is true and you are in a growing industry, it would probably make sense to be more aggressive with your contributions. The report suggests planning out your needs for the year and make a commitment to yourself about how much money you want to save.

There are budget calculators on the Internet that may help you out. This can help in determining the difference between a $50 monthly investment over 20 years and a $100 monthly investment over 10 years. The reports suggests that if you are young and have a secure job, put as much away as your employer will allow.

You should keep track of your pay raises and sources of income from your employer. Is he taking the contribution as a straight percentage of your total income, or just your salary? What about the commissions or other perks? If the employer is putting in a flat amount and then later gives you a raise, check and make sure that he is contributing more in commensurate with your raise.

By the Best Syndication Staff

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