Now the question - how is this $30,000 number derived?
First, a 401(k) plan is a "defined contribution" plan. Based on IRS guidance, the limitation for a defined contribution plan is $52,000 each year!
Second, you can contribute $18,000 (in 2015) pre-tax each year to the 401(k) plan. Your employer may also chip in with an employer match of a few thousand dollars, making the total contribution to your plan around $20,000.
This creates almost $30,000 gap between what you may have contributed each year to your 401(k) vs. what's allowed by IRS!
In our next blog post, we will show you how to find out if you can take advantage of this $30,000 gap by making it a Roth IRA contribution.