One easy way to save up for the future is by depositing money in a companies 401k plan. But how much can an employee sace in this plan? Well the answer is a lot.
The major advantage of a 401k plan is that you can deposit money into it before you have to pay taxes on it and have it grow tax defered. However there is something called a maximum 401k contribution limit which sets a limit on how much an investor can actually save.
For the year 2009 the maximum 401k contribution limit is $16,500. Some employers will actually place more limits on how much a person can deposit every year. For instance if you are making $70,000 a year and your employer does not allow you to save more than 20% of your income to your 401k then you would be limited to saving $14,000 a year.
If you are able to save the maximum amount every year it has the potential to pay off huge dividends in the future. If you where able to make the $14,000 minimum payment every year that would mean after 40 years you would have saved $560,000. If your employer matched you $1 for $1 that would be another $560,000 for a total of $1,120,000. And if you factor in the interest that you could potentially make off of a stock the amount in a 401k after so many years could be a lot larger.
Of course this would be an ideal situation if everything goes according to plan. Life does happen; you may be unemployed for a year or forced to take out an early 401k withdrawal. However the plan has worked pretty well in the past for those who keep putting money into it.
By investing the maximum into your 401k you can be sure that there is some sort of safety net around you, helping you to buy the things you want after you retire.
Investing in a 401k can be a great slow and steady way to build up money for retirement. And by saving a large amount of money into it every year you can avoid the fear of not having enough money to retire.
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