Remember that resolution you had in January? You know, the one about contributing more to your work retirement plan this year? How’s that going?
As we get set to wrap up 2019, now is a great time to revisit whether or not you are making the most of your retirement account at work. When it comes to your 401(k) or 403(b), you have until December 31st to maximize your contributions, if you can afford to. So what exactly are we talking about when we say maximize your contributions? Here are the IRS contribution limits for 401(k) and 403(b) accounts, for 2019:
Amount YOU can contribute this year
Under 50 yrs young: $19,000
50 or wiser: $25,000 ($19,000 + $6,000 catch-up allowance)
Keep in mind that this is the total amount you can contribute, regardless of what your employer may offer to match. Whether or not you decide to contribute pre-tax, roth, or a combination of both (if your plan allows), the total cannot exceed these numbers for the calendar year.
If your plan does allow both pre-tax and roth contributions, we generally recommend splitting your total contributions to the plan between each. This allows you to reap the benefits of each and hedge against the uncertainty of your future tax situation and future tax law.
As a general rule of thumb, if your employer offers a match, we recommend contributing as much as you need to in order to take full advantage of that match, at the very least. An employer match is essentially free money and if you aren’t contributing enough to get the full match they offer, you’re leaving money on the table, which can potentially take years of retirement income away from your future self.
You still have time!
As the year winds down, many of you may have an end-of-year bonus or raise coming. Both of those are great opportunities to give your 401(k) a boost toward maxing out your contributions.
If you’re not able to maximize your contributions just yet, a great habit to start this year is to simply start small. Consider bumping up your contribution percentage by just 1%. See how that impacts your budget over the next 6 months or so and consider increasing by another 1%.
Over time, these small incremental changes will help you naturally adapt your budget to your savings goals, instead of the other way around, where savings is the afterthought. “Pay yourself first” is a great motto to live by. Many plans even offer an “auto-escalation” feature, where you can set a specific timeline and increment for automatic increases over time. Check with your plan administrator/HR department at work to see if this is available in your plan.
Blooom does not provide tax advice. Consult a tax expert for tax-specific questions.