As you continue to plan for retirement, your tax-advantaged retirement account offers several distinct advantages. First, there is the obvious benefit of being able to stash money in a fund that allows for untaxed growth over the years, helping you save for a more comfortable retirement. That is the primary reason most people open and fund a retirement savings account.
Then, of course, you also enjoy distinct tax advantages from utilizing a 401(k), 403(b), or Thrift Savings Account (for federal employees). All contributions, up to a certain limit, go into your retirement fund on a pre-tax basis. This lowers your overall taxable income for the year, helping you to save on your federal income tax bill.
That brings us to our good news. The IRS has approved a contribution limit increase that will take effect in 2018. Now you can save an additional 500 pre-tax dollars in qualified retirement accounts each year, for a total contribution of $18,500. And, as we mentioned, this also means you can lower your taxable income by a maximum of $18,500.
As for catch-up contribution limits, for those age 50 and older, the limit stays the same for now. You can save an extra $6,000 toward retirement each year after you turn 50, for a total annual contribution of $24,500.
That’s all great news for those of you who are utilizing this type of retirement account to plan for your future. But if you’re also interested in funding an Individual Retirement Account (either traditional or Roth), you might be interested to know that the contribution limit for those accounts is $5,500 per year. You can also make catch-up contributions of $1,000, annually, once you turn age 50.
Some people choose to fund both a 401(k) and an IRA, to save even more for retirement.
If you have questions about retirement plan contribution limits, want to contribute more to your account, or need help with anything else related to financial planning, give us a call. We can help you put together a plan that meets your needs.