In 2015, Put Up To $18k into Your 401(k)

by Redeeming Riches on November 14, 2014

Deposit Into Piggy Bank Savings AccountIn 2015, Put Up To $18k into Your 401(k)

How is your 401(K) doing? Do you have any retirement savings in place? If you don’t, then there has never been a better time to start saving. In an effort to ensure that Americans have enough money when it comes time for them to retire, the IRS has authorized an increase to the 401(K) contributions that can be made. This includes an increase from $17,500 to an impressive $18,000.

Catch up annual contribution limits have also increased for those who are 50 and over. The new cap has been raised from $5,500 to $6,000. That means for those over the age of 50, it is possible to contribute as much as $24,000 to your retirement account. Those funds are certain to come in handy.

Knowing that there is an increase in retirement savings possible. How much would you have to contribute to hit the maximum $18,000 into your 401(K) over the next year? Your monthly annual contributions would need to be $1,500. This may seem like a lot all at once, but your contributions to your retirement savings do help to reduce your tax liability.  For those who fall in the 25% tax bracket, if you were to contribute the maximum, your tax liability for the year would decrease by $4,375. Your actual savings would need to be based on your actual income and the work that your accountant does.

Since most people don’t get paid once a month, you need to take a moment to look at the other breakdowns that are more in line with your actual pay schedule. If you are paid twice a month on a set schedule, you will pay $750 per check. If you are paid bi-weekly, your contribution amount is $692.30 per check. Those paid weekly would contribute $346.14 per paycheck. If you end up falling behind schedule and want to hit the maximum limit, you’ll want to speak to your Human Resources department to ensure that you have an action plan for catching up.

Before you retire, it is important that you leave your 401(K) account in place. Your retirement savings will be heavily taxed if you withdraw them early. The exception is if you take a loan against the account, if your plan allows for it. In these cases, you pay yourself interest on the money you borrow.

When it comes to your 401(K) it is important to sit down with an accountant and to gain a full understanding of how these retirement savings plans work. That way, you can maximize the benefits of your plan.

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