Are You Limiting Your Retirement Savings With These Misconceptions?
February 21, 2018In case you missed it, the IRS gave retirement savers a little boost this year by increasing the limit you can contribute to a 401(k) or 403(b) to $18,500 (the catch-up contribution stays the same, so 50+ can now save a total of $24,500). However, there are a few common misconceptions about this limit I’d like to clear up:
- If your job’s retirement plan allows you to pick between pre-tax/traditional contributions or after-tax/Roth, that limit is the total between the two. So if you decide to split your savings between both, you can only put a total of $18,500 between both. Also, income limits don’t apply to Roth 401(k) like they do to the Roth IRA, so higher earners, get on board!
- If your employer deposits money in your account via match or other contributions, this DOES NOT AFFECT your limit — you can put $18,500 plus whatever they put in. (some companies even let people put more in above that limit, called “after-tax voluntary” to get to the total IRS limit of $55,000 for 2018)
- What you put into your 401(k) doesn’t affect how much you can contribute to an outside IRA (although your income could limit your ability to fully take advantage). EVERYONE can put up to $5,500 in a pre-tax/traditional IRA ($6,500 for the 50+ crowd), although not everyone will be able to deduct that deposit from their income taxes.
If you have your contributions set to max out based on last year’s limit of $18,000, you may want to log into your account to bump up your contributions to take advantage of the additional $500 you can save this year.
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