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The government set the prescribed contribution limits and in addition, your employer might have his own limits that employees have to follow. This means that you might end up contributing a lower amount than that allowed by the government.
However, the US government is giving more importance to saving for retirement. The government also realizes that a 401k plan is one of the best ways for wage earners to save money for life after retirement rather than depending on social security. This is the reason why the US government has started increasing the contribution limits in the last few years.
The contribution limit for 2007 is $15,500 for the year. If you are 50 or above, you are entitled to save an additional $5,000 as part of the catch-up contribution schemed. So, in effect a person who is 50 or above will be allowed to contribute $20,500 to his 401k plan.
The limit for the year 2008 remains unchanged. It is the same as 2007.
This said, an employer may have his own limits. For example, an employer might allow just 10 percent of the salary to be contributed to the 401k. So, if you earn $50,000 annually, you will be allowed to put in just $5,000 even though the IRS regulations allow you contribute $15,500.
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