When looking into 401k contribution limits it’s important to understand what you are trying to accomplish with your money. This is because although qualified retirement plans are popular, they aren’t necessarily the best wealth accumulation option for many people. Many people ask about 401k contribution limits because they are either high networth individuals, or approaching their golden years and want to have a nest egg available after age 59 ½.

For someone approaching retirement in the next few years, contributing the maximum might make sense. Many of the negatives attached with losing control of your own money, having it invested in places unknown to you, and the possibility that the government could change withdrawal rules while your money is trapped –have a lower downside on those approaching the withdrawal age limits.
(NOTE: These negatives still exist, but if your money will only be tied up for a short period of time, the negatives will have less impact than having money trapped in a qualified plan for 30 years or longer.)

For higher net worth individuals, maxing out your plan may seem to be a drop in the bucket and automatic “ but does that mean it is the best use of your funds? Most high net worth individuals have access to lower risk, higher return investments due to their level of unique knowledge in their field of expertise.

Also, financial experts agree that it makes sense to invest in areas where you have personal expertise and experience versus blindly contributing to an uncontrollable fund within a qualified plan (usually being run by a fund manager who is a unknown to the you, the investor).

Another reason that people max out their 401k contribution limits is that they see the company match feature as free money or a 100% return on investment. Although this may appear to be the case on first glance, it is far from the truth. I have personally tested returns from qualified plans against the opportunity cost of using the funds elsewhere. I found that people investing outside of a qualified plan far exceed the returns and flexibility of having funds tied up in these retirement vehicles.
In 2009 the 401k contribution limits for people under the age of 50 is: $16,500 and for people 50 or older it is: $22,000. In both cases that amounts to a lot of money for nearly anyone with a corporate salary, so how that money is used should be considered carefully. When weighed against investing in education, starting a business, or areas where you have a great deal of knowledge “ placing money into a qualified account blindly can feel a little like gambling. (If the market does well, you do well; but if it suffers so do you.) This lack of control is one of the largest contributors to stress, and a major way that 401k contribution limits the amount of spending that people enjoy — even AFTER they’ve retired.