Are you funding a traditional retirement account? Are you contributing the maximum allowable amounts each year, in order to best prepare for your future while reaping important tax benefits? If so, congratulations! You’re making a responsible decision, and you will no doubt thank yourself for it one day.
Now we have a bit more good news: Next year, you can contribute a bit more to that retirement account. The IRS has issued an increase to the annual contribution limit, allowing you to save 500 dollars more in 2018.
For most people, that means you can stash $18,500 in your traditional retirement account (401k, 403b, or Thrift Savings Plan). Of course, if you’ve reached age 50, you can make an additional catch-up contribution of $6,000, for a total annual contribution of $24,500.
A 500-dollar increase might not sound like a lot of money. But remember, 500 dollars per year will add up to a nice sum of money over a decade or more! Plus, your account utilizes the power of compounding interest in order to grow your money over time. So we’re not really talking about just 500 dollars here!
Also keep in mind that this limit applies to your contributions only. Your employer is still allowed to make matching contributions to the account, if they have chosen to do so.
Of course, saving money in a retirement account doesn’t only benefit you once you reach retirement. It benefits you now, by reducing your taxable income in the amount of your annual contribution. So, in 2018, you will shave another 500 dollars off of your taxable income if you contribute the maximum amount.
Some people choose to fund an IRA or Roth IRA, either in addition to their traditional account, or instead of one. The contribution limit for both types of IRA will be $5,500 in 2018, with a catch-up contribution of $1,000 for those aged 50 and older.
Before the end of the year, check your contributions for the year and divert a bit more cash to your retirement account if you haven’t reached the maximum. Then, establish an increased savings rate to begin in January, so that you can reach the maximum contribution limit for 2018. Call us for an appointment, and we can discuss your retirement plan contributions, as well as other financial planning strategies.