In addition to this dollar increase, as long as your plan provides, you can contribute up to 100% of your compensation!

A simple example –

John & Bob are both 25 years old. John begins saving $2,000 immediately but stops after 10 years. Bob waits until he is 35 but then saves $2,000 per year all the way to 65.

These charts illustrate the results for John and Bob assuming 8% investment earnings per year. Because John started earlier his earnings are much greater and Bob cannot catch up even though John has stopped contributing and Bob continues his contributions to age 65.

The Economic Growth and Tax Relief Act of 2001 (EGTRRA) not only provides for phased-in increases in the 401(k) dollar maximums, it also provides for catch-up contributions for employees who are age 50 or over.

The maximum dollar amounts and catch-up contributions are:

Calendar Year	Dollar Maximum	Additional Amount Age 50 or Older
2001	$10,500	N/A
2002	$11,000	$1,000
2003	$12,000	$2,000
2004	$13,000	$3,000
2005	$14,000	$4,000
2006	$15,000	$5,000

Tax deferred savings grow geometrically. Geometric growth means that your funds grow at an ever-increasing rate. Albert Einstein called this compounding effect the eighth wonder of the world. We here at the401kstore.com call it the magic of compound interest.