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There’s Still Time in 2018 to Make Changes in Your 401(k) Investing
The IRS announced earlier in 2018 that retirement plan contribution limits for 401(k)s are changing. The increased contribution limits can help you put more away to reach your retirement goals and there’s still time in 2018 to put this change into action.
For three years, the IRS held the amount you can contribute to your 401(k) to $18,000 annually. This year, your opportunity for 401(k) investing improves as the limit goes up to $18,500 (plus a $6,000 catch-up contribution for those 50 and older). They also increased income phase-outs for IRA contributors as well as adjusting gross income limits for those who get the “saver’s credit.”
Changes to IRAs
If your investments include a SEP IRA, the overall defined contribution plan goes up to $55,000 per year (it was previously $54,000), which is seen as particularly beneficial to small business owners and others who are self-employed.
For deductible IRA phase-outs, the IRS is allowing people to earn more in 2018 and deduct contributions to a traditional pre-tax IRA. However, keep in mind that if you earn too much to get a deduction, you can still contribute to this vehicle, it just won’t be deductible.
If you’re an IRA contributor that isn’t covered by a retirement plan from your workplace, and your income is between $189,000 and $199,000 the deductions are phased out, which is up $3,000 from what was allowed last year.
Changes to the Saver’s Credit
Low- and moderate-income workers who are looking to take advantage of the saver’s credit get a $1,000 increase in what they can make and still qualify for the credit. The IRS allows couples that file jointly in 2018 to make $63,000, up from $62,000. Head of household limits go up from $46,500 to $47,250, and single or married and filing separately can earn $31,500 and still qualify for the credit, which is a $500 increase from last year.
Family Investment Center stays on top of changes like these and our team has many ideas, strategies and plans that meet the needs of each individual investor as these changes continue to take place. Contact us today and let’s talk about how we can help keep you on track with your retirement plan
Three Quick Reminders for 401(k) Investing
A 401(k) is an excellent investment tool that many workers utilize today for their retirement. Most pension plans have been replaced, in many cases, with a 401(k). Some companies offer an employer match, which is free money to you (or a company benefit, if you prefer to look at it that way). That is why 401(k) investing can be a key part of your portfolio.
First and foremost – if your company does offer a match, it may only be a single-digit percentage. Consider taking full advantage of this, because if you’re not contributing the maximum amount, you’re leaving money on the table that could be increasing the amount you have in your account when you retire. This means that if your company matches up to five percent, you should attempt to contribute five percent of each paycheck in the company 401(k) to get the full company match.
Many people will contribute more than what the employer will match because not only will they benefit from the compound interest of the matching amount from the company, but they’ll also have extra going into it that will give them more options in what they can do in retirement.
Most employees who contribute to their 401(k) accounts don’t miss it because it’s automatically withdrawn from their paycheck and placed directly into the account. There are no checks to sign or money to withdraw; you just get your regular paycheck, and you can see your contribution in the itemized list of deductions.
Enrollment is automatic, as well, for many companies, which means there is no decision to make on your part. All you have to do is adjust how much you’ll be putting in per pay period.
Take it to the Max
A goal for your investment is to try and reach the maximum amount the IRS allows you to put in every year. (There are some circumstances where this may not be in your best interest, though, so be sure to consult an advisor.) This number can change, but currently, you can contribute up to $18,000 of earned income per year.
If you’re 55 or older, you can contribute more – it’s called a “catch-up contribution” that allows you to contribute an extra $6,000 a year. This is an excellent option for people who’ve gotten a late start on retirement.
Don’t Abuse the Bonus
What do you do with your tax refunds, bonuses and raises? Do you plan big nights out, trips and large purchases? If you just spent a small percentage of that money on those things and then took the rest of that extra money and put it into your 401(k), you will grow your retirement savings at a faster rate. Let’s say you just got a five percent raise. Consider bumping up your contribution by four percent; then you may have that much extra to use in retirement.
At Family Investment Center, we’ve got many ideas to help you plan for retirement. Contact us today and schedule a visit to talk about a strategy for your investments.
Preparing for Retirement With 401(k) Investing
Once you hit the big 5-0, there are some financial advantages that can be beneficial for everyone who hits this milestone, including some tax breaks and perks where your retirement investments, like 401(k) investing, are concerned.
As of 2017, you can contribute $18,000 a year to your 401(k). However, once you hit the age of 50, you can put an extra $6,000 into your 401(k) each year. These are referred to as “catch-up” contributions, which can offer people with less time until retirement to contribute more to their plan.
If you’re turning 50 or have already hit that milestone, it can be beneficial for you to take advantage of that extra $6,000 investment. There are also advantages for business owners who have yet to establish their retirement investments. For example, say a couple in their mid-50s wants to finally get the ball rolling on their retirement accounts. They can open a self-employed 401(k), which is also referred to as an individual or solo 401(k), and sink the full regular contribution plus the “catch-up” $6,000 into this account.
For those who would rather go with an IRA investment, there are some options here as well. While traditional 401(k) contributions are tax-deductible, any withdrawals from the 401(k) are taxed as income. A traditional IRA works similarly, but the maximum annual contribution is $5,500, with an extra $1,000 “catch-up” contribution. With a Roth IRA, however, no deduction may be taken for contributions, but then withdrawals in retirement are not taxable. IRAs can be extremely advantageous for extra savings, especially when used in conjunction with employer-sponsored plans.
According to a recent Forbes article, 50 percent of investors age 50 to 69 took full advantage of catch-up contributions in 2015. For those putting their investments into a Roth IRA, 45 percent did the same.
The rules are different depending on the type of plan to which you’re contributing, so be sure to ask an advisor for the applicable rules. Aging into 50 and beyond can be an exciting and rewarding time. At Family Investment Center, we know a lot about the various ways that age has advantages when it comes to investing. Come in and talk to us today about your investment goals. If you’ve yet to establish a strategy, we’ll discuss the options available to you and get you started on the right path.