I know you’re familiar with 401(k) and IRA plans. Hopefully you’re already contributing to both of them! If you’d like to reread some previous articles on these savings plans, please check out 2018 Financial Resolutions, Financial Planning Resolutions and Plan Now to Minimize Your Taxes.
As of January 1, you can sock away even more money for retirement. The contribution limit for employees who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan is increased from $18,500 to $19,000. The additional catch-up contribution limit for individuals aged 50 or over remains at $6,000.
The limit on annual contributions to an IRA, which last increased in 2013, is increased from $5,500 to $6,000. The additional catch-up contribution limit for individuals aged 50 and over remains at $1,000.
The combined contribution limit increase of $1,000 ($500 from IRA and $500 from 401(k)) per year can add up. For example, assuming a 4.5% growth rate and 25 years to retirement, you’ll have an extra $50,000 for retirement!
You may be wondering about the tax treatment of these contributions given the tax-law changes this year. For many of us, these contributions are still tax deductible for your 401(k) and for your Traditional IRA. So your Adjusted Gross Income could be reduced by $25,000 ($19,000 + $6,000) if you maxed out your savings for both plans. However, for some of us, the deductibility of your contributions may have limitations. These can depend on you income level, whether you are covered by a retirement plan at work and your tax-filing status. Please review such details with your financial or tax advisor.
Deductibility is one of the specifics that need to be understood in your individual situation. Another consideration is whether to fund a traditional or a Roth IRA. We’d be happy discuss your situation in a no-charge, no-obligation initial meeting. Just visit our website or give us a call at 970.419.8212 to learn more.
This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products. Please consult your tax or investment advisor for specific advice.