Death and taxes. The two things that most say are certain in life. Well now at least when it comes to taxes you might be able to avoid some because of a recent decision by the Internal Revenue Service (IRS). The IRS recently came out with the guidelines for 2018 when it comes to tax-advantaged retirement accounts. Although none of the changes were dramatic, they made a few tweaks that will allow individuals to boost retirement savings in certain tax friendly accounts.
The 2018 401(k) contribution limit is being pushed slightly upward to $18,500 per year. This is a $500 increase on what it used to be. Individuals who are 50 and over can still save an additional $6,000 meaning some can contribute as much as $24,500 into a company 401(k) plan. While an increase in the 2018 401(k) contribution limit came about for the upcoming year, other retirement plans such as IRA’s and Roth IRA’s remain unchanged. You are still only able to contribute $5,500 per year to both traditional or Roth IRA.
IS CONTRIBUTING TO A 401(k) A GOOD IDEA?
The short answer is absolutely! While not all companies offer 401(k) plans for employees, a lot do. It is highly recommend that you put in at least the minimum amount required to get the full match your company offers. Once you have done this, see if you can contribute a little bit more and further increase your retirement savings. At my first job, I began contributing 6% which was what I needed to do to get the entirety of my company’s match; however, I began to increase it over time. Get a 3% raise? Try increasing your 401(k) contribution by 2%. This was a simple and easy method I did each time I’d receive one, and the best part was I never missed the money at all.
IS IT EVEN POSSIBLE TO CONTRIBUTE $18,500 OR $24,500 TO A 401(k)?
Yes again. Is it hard? Sure it can be, but is it doable? Absolutely. How do I know it’s possible? Because I myself max out my retirement account for my 401(k). I never see the money. It’s taken directly out of my paycheck, so I never miss out on spending it. The recent increase of the 2018 401(k) contribution limit is something that I will take advantage of. A small percentage bump can make a lasting impact during one’s retirement.
In closing, the increase of the 2018 401(k) contribution limit won’t have much of an impact on most people. Very few actually max out their retirement accounts. But if you’re like myself, then you welcome the news with open arms. While 2018 saw an increase to the 401(k) contribution limit, 2019 has a very good chance to see an increase for contribution limits to both traditional and Roth IRA’s. Only time will tell.
Budget Smart, Invest Wise