401k retirement plan 2008401k Retirement PlanA 401k Retirement Plan is a defined contribution retirement plan that allows employees to have part of their pre tax pay deducted from their paycheck and put into an account that will be held tax exempt until such time as the money is actually used. In some cases, the employer agrees to match each dollar that the employee contributes to the 401k plan, up to a certain percentage that the employer determines, with a contribution to the account. There are two basic types of 401k plans, a bonus or profit-sharing plan, and a thrift plan. A 401k plan is an employer sponsored retirement plan and is grouped into two categories defined benefit and defined contribution. With a defined benefit plan, the employer promises to pay a defined amount to retirees who meet certain eligibility criteria. With a defined contribution plan, the plan defines the contributions that an employer can make and not the benefit that the employee will receive at retirement. A defined benefit plan usually links the benefit to the amount of service and is based on the final average salary. Employees can usually predict the monthly retirement income they might receive with this type of plan and might also be given the choice of a lumpsum benefit at retirement. 401k A defined contribution plan is not a defined benefit so the employee cannot predict a monthly retirement income. If an employee leaves the company, they usually receive the proceeds in a current or deferred lump sum or annuity. 401k retirement plan 2008401k Contribution Limits 2008As you can see from the table below, in 2009 the 401k elective deferral limit is increased to $16,500, from $15,500 for 2008. For those above the age of 50 the "catch-up" amount is increased too - to $5,500 for 2009, from the $5,000 limit for 2008.Last year the 401k limit remained unchanged at $15,500 for 2008. The annual catch-up contribution limit for the employees above the age of 50 also remained unchanged at $5,000 for 2008. You should have in mind that these pension plan limitations are subject to further change by the company you work for, but the amount should not exceed the stated below. 401k Retirement Plan
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