401(k) contribution limits unchanged for 2014

Washington is holding the line on contributions to 401(k) plans in 2014.

Workers under the age of 50 will be able to put a maximum of $17,500 into their employer-sponsored retirement plans next year.

Those 50 and older will be allowed to make an additional $5,500 catch-up contribution, raising the total to $23,000.

Those are the same contribution limits as this year.

That's because Congress has taken no action to raise those caps and the Internal Revenue Service can only boost the limits to keep up with inflation.

With the Consumer Price Index up only 1.2% over the past year, the IRS can't make even a minimal increase in the caps.

Of course, most of us don't max out our 401(k) plans.

Employees could have contributed up to $16,500 to their 401(k) plan in 2010 and another $5,500 in catch-up contributions if they were age 50 or older.

But according to the Federal Reserve's most recent Survey of Consumer Finances, only 6.7% of us maxed out our contributions in 2010. (The Fed defined "maxed out" as either reaching the contribution limits or investing 25% or more of gross income, whichever was less.)

Thanks to the financial crisis and recession, that was down from 7.7% in 2007. (The survey is only taken every three years. The 2013 survey is underway and should be released next year.)

As you might suspect, high-income households (those earning $100,000 or more) were far more likely to max out their 401(k) than middle income households earning $40,000 to $60,000 (28% vs. 1%).

But reaching that point is a critical milestone in almost everyone’s effort to build financial security for themselves and their families.

Contributions to traditional 401(k) plans are tax-deductible and your savings is allowed to grow tax-free until you need it.

These retirement plans provide one of the two biggest tax breaks available to middle-income Americans (the mortgage deduction is the other).

You can use our 401(k) calculator to see how maxing out your account would boost your retirement income.

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