Push Your 401(k) to New Heights With Updated Contribution Limit in 2018
You’ve probably heard that feeding your 401(k) through paycheck deductions is a good thing, right?
In most cases, your employer even matches a percentage of what you put in, so why in the world would you pass up free money?
If you’re all about saving for retirement and putting away as much as you can, we’ve got some good news. Starting in 2018, you can contribute $500 more than you were allowed to in 2017.
A New Max on 401(k) Contributions
In 2018, the U.S. government will raise the personal 401(k) contribution max from $18,000 to $18,500 annually. That’s an extra $500 before taxes that you can tuck away and have working for you and your future.
This maximum does not include employer contributions, so your freebie dough is off the hook. Plus, if you’re over the age of 50 and a little behind on your retirement savings, you can do a one-time “catch up payment” of up to $6,000. That would allow your total to reach $24,500 for 2018.
Okay, we’ll be real. Not many of us are putting away that much money. If you get paid every two weeks like most of us, you’re looking at nearly $712 taken out of each paycheck to reach that lofty $18,500 by year’s end.
Another way to look at it is that if you make $92,500 annually, you can now stash a full 20% of your paycheck. What would that add up to?
If you were to start with no money and saved this much each year for 35 years, you’d have $647,500 before interest. Factor in a modest 6% return on investment, and that number jumps to over $2.2 million. That’s a nice little chunk of change for your golden years.
The trick is to not dip into your 401(k) savings before you retire.
It’s nice to have goals and having a boatload of cash by the time you retire is a good one. But let’s face it, most of us don’t earn $92,000 a year and don’t put 20% of our salaries in our 401(k) accounts.
For now, contribute as much as you can to your 401(k) without putting your financial health at risk. A good starting point is to see how much your employer matches and try to at least hit that number.
Need to get started? Here’s a simple 401(k) guide to get you jump started.
Get started now, or if you already have, revisit your 401(k) and do your best to maximize it. Who knows? Perhaps you’ll reach that $18,500 annual contribution ceiling eventually. #lifegoals
Tyler Omoth is a senior writer at The Penny Hoarder who loves soaking up the sun and finding creative ways to help others. Catch him on Twitter at @Tyomoth.