Tag Archives: Retirement

Retirement – IRA contribution limits

Lake Anne, Reston, VA Copyright 2015 - Sweet Doll Designs
Lake Anne, Reston, VA
Copyright 2015 – Sweet Doll Designs

Last weekend, I was at a friend’s house for dinner and we started talking about saving for retirement.  We were discussing the different types of plans we use for our personal retirement savings – 401k, 403b, IRA, and Roth IRA.  We knew there were contribution limits for each retirement tool, but we weren’t sure about retirement limits among similar tools.  Our question was: can we contribute the maximum amount to a traditional IRA plus the maximum amount to a Roth IRA?

I decided to answer this burning question so I looked it up on the IRS website!

According to the IRS, the contribution limit for IRAs in 2015 is $5,500.  It is important to note that this is the limit for most people, but if you are age 50 and over, you are able to contribute more to your retirement account (to determine how much more, consult the IRS website – https://www.irs.gov/Retirement-Plans/COLA-Increases-for-Dollar-Limitations-on-Benefits-and-Contributions).

The IRS website clearly states that you may contribute a total of $5,500 to all your IRA accounts, regardless of if you’re contributing to just one IRA, several IRAs, or a traditional IRA and a Roth IRA (https://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-IRA-Contribution-Limits).  So, no, you can’t contribute the maximum amount to a traditional IRA plus the maximum amount to a Roth IRA.

That settles that question! 🙂

Happy Decoding!

Fun fact for today: Most people think IRA stands for “Individual Retirement Account”.  However, that’s not actually the case.  IRA stands for “Individual Retirement Arrangement”.  Exciting stuff, huh? 😉 (Source: https://www.irahelp.com/slottreport/what-does-ira-stand-not-what-you-may-think)

Author’s note: There are many different kinds of retirement plans for different circumstances.  You can learn more about them here: https://www.irs.gov/Retirement-Plans/Plan-Sponsor/Types-of-Retirement-Plans-1.  

Disclaimer: This post is not intended to be retirement or financial advice.  Please consult your tax professional regarding your specific circumstances before making any changes to your retirement and other accounts.

Advertisements

Back to school – retirement

Copyright 2014 - Sweet Doll Designs
Copyright 2014 – Sweet Doll Designs

Yes, I know, the title of this post might sound a little funky. If you’re still in school, why would you be thinking about retirement?! My thought is that you can never start saving for retirement too early. Hear me out…

Over the summer, you probably worked really hard at a summer job and earned a bunch of money. I’m sure that you’ll use some of that money for your books for the semester, and for your entertainment – dinner and a movie with friends, etc. These are all important things to use your money for.

Have you also saved some of it? Remember we talked about opening checking and savings accounts last month (revisit that post here). It’s important to put some of the money you earned in a savings account so that it earns money while you’re in school! We’ll talk more about the miracle of compound interest a little later. It’s an interesting subject…trust me!

Also, remember we talked about 401k plans (revisit that post here)? Well, if you’re not eligible for one because your employer doesn’t offer one, you can still save for retirement. When you turn 18, you are eligible to open an Individual Retirement Account (IRA). Consider depositing some of your hard-earned summer savings in a retirement account. When you get to be retirement age, you’ll be happy that you did!

Like a 401k plan, an IRA will allow you to invest in mutual funds and sometimes even stocks. Each plan has its own selection of funds in which to invest. In a later post, we’ll discuss more about the different types of retirement plans and investments.

Happy Decoding!

Fun fact for today – The motto “In God We Trust” didn’t appear on Federal Reserve notes until 1963 (Source: http://www.federalreserveeducation.org/about-the-fed/structure-and-functions/financial-services/fun_facts.cfm)

Retirement – 401k plan match

http://www.publicdomainpictures.net/view-image.php?image=32842&picture=-100
http://www.publicdomainpictures.net/view-image.php?image=32842&picture=-100

Most companies these days offer employees a retirement plan, usually called a 401k.  As a part of these programs, companies will often offer a company match to help you save for retirement quicker.  Both the plan and the match are considered part of your benefits package.

You should always take advantage of the full company match – this is free money!

Matching programs differ from company to company.  Some companies will contribute a percentage of your salary to your 401k plan, even if you don’t contribute to the plan – this is pretty awesome, and also rare.  The company I work for will contribute 4.5% of my salary to my 401k plan as long as I contribute at least 5% of my salary to the plan.  That means, if 5% of my salary is $1,000, when I contribute $1,000 of my salary, my company will contribute $900 of their money to my 401k account.

You are always welcome to contribute more than that to your 401k plan, and I encourage you to do so.  You can never save too much for retirement!  However, you should always contribute at least the minimum required in order to qualify for the company match in your 401k plan.

For 2014, the IRS has decided that the maximum amount you are allowed to contribute to your 401k plan is $17,500.  This is quite a lot of money, and you may not be in a position to defer all that income each year.

Ideally, when you start your next job, you will “max out” your 401k contribution by contributing $17,500 all at once.  It may be tight at first, but as you move up in your career and receive cost of living increases, raises, and promotions, the maximum amount to contribute to your 401 plan will become a smaller and smaller percentage of your salary.

If maxing out is not possible in your situation, start with the percentage that is required in order to receive the company match.  Then each year, increase this percentage by 1%.  You won’t notice that much of a difference in your paycheck, especially if you increase the percentage at the same time as you receive your annual raise.

By increasing your 401k contribution by 1% each year, you will eventually get to the maximum contribution amount allowed each year.  If you are given an extra-large raise one year, don’t be shy to increase your contribution percentage by more than just 1%.  The more, the better!

Since it did not occur to me when I started this job to max out my 401k contribution, I have been increasing the amount I’m contributing by 1% each year.  Anytime I’ve received a large raise, I’ve increased my contribution by a larger percentage.  I’m now up to contributing 12% of my salary to my 401k plan.  I plan to max out my 401k contribution when I start my next job.

Saving as much as you can when you’re young may be difficult, but it is well worth the effort.  Time is definitely on your side!

Happy Decoding!

Fun fact for today – The name 401k was taken from subsection 401(k) of the Internal Revenue Code, which is the federal statutory tax law in the United States.  Haha – I’m not sure how fun this fact is, but it’s certainly educational! =) (Sources: http://www.selfgrowth.com/articles/10-facts-you-need-to-know-about-the-401k-plan & http://en.wikipedia.org/wiki/Internal_Revenue_Code)