Episode 58: What Are The Contribution Limits for 401(k)s?
Have your question answered on the Money Wisdom Question Series!
Today’s question is, what are the contribution limits for 401(k)s?
So I’ll refer to them as 401(k)s, but there are other available plans at work such as a 403(b) and 457. For the most part, people are saving money into these plans on a pretax basis.
For example , you make $80,000 a year and you put $10,000 of that into your 401(k). Instead of paying taxes that year on $80,000 of income, you pay taxes on $70,000 of income and that 10,000 grows for retirement, at which point you take out and pay taxes on it then. Sometimes that’s more, and sometimes that’s less, but that’s a conversation for another day.
401(k) Contribution Limits By Year
- 2021: your contribution limit is $19,500. If you are over the age of 50, you can make a catch-up contribution of $6,500 for a total contribution amount of $26,000.
- 2022: limit will increase by 1,000, so you can put in $21,500, no matter your age. If you’re over the age of 50, you can make an additional catch up contribution of $6,500 and that’ll get you to $27,000.
The Importance of Matching
You want to make sure that you’re saving in a vehicle at work. If you’re getting matched, make sure you’re contributing at least enough money to get that match. A lot of employers will deposit money into your 401(k) even if you don’t, but you do have to open up the 401(k) to take advantage of that. This is important because what they’re matching is free money and will be the funds that you’re going to live off of in retirement. You can get into the conversation about whether you should be putting money into a traditional 401(k) pretax or a Roth 401(k) after tax so that when you take that money out, you don’t have to pay taxes on any of it.
Takeaways
You want a balance and options so that it’s not all pre-tax. You have to be having these conversations now, not just about how much you should save, but are you saving the right way? And once you do save, was that money working for you in the 401(k) as hard as you were working for it? 401(k)s are a very important vehicle, a great thing to be saving money into, but have these conversations to make sure that it’s adding value. Look at the entirety of your plan is because that’s a key piece of it.
Thanks for joining me and I hope you found this information helpful!
P.S. If you enjoyed this topic and want to learn more, download your copy of our book “The Ultimate 401(k) Guide”.
P.P.S. Feel free to submit questions here for a chance to have them answered!
Information presented in our podcasts is considered current as of the created date. Over time, some information presented may become stale. We recommend you consult with your Financial Professional before making any changes based on information contained here.
Johnson Brunetti is a marketing name for the businesses of JB Capital and JN Financial.
Investment Advisory Services offered through JB Capital, LLC. Insurance Products offered through JN Financial, LLC.
The guarantees provided by any type of insurance contract are based on the claims-paying ability of the insurance company.
Related Resources
-
Should I Downsize My Home for Retirement?
Equity is on the minds of many pre-retirees and retirees today, more specifically: Should I downsize my home in retirement? And if so, when is the right time to do it? In this week’s Money Wisd… -
How Can You Protect Your Retirement Assets for Your Family?
When you’re focused on planning for retirement, it’s easy to overlook how you can protect your assets for both yourself and your family. While there’s no one-size-fits-all approach, your first ste… -
What Level of Risk Is Right for Your Retirement Plan?
In this week’s Money Wisdom Question Series, Ian Fergusson, RICP® addresses a fundamental concern for anyone approaching or in retirement: What level of risk is appropriate for my retirement plan?… -
What Estate Planning Steps Should I Take?
With retirement on the horizon, you may be wondering what steps you should be taking from an estate planning standpoint. At its core, there are three key estate planning considerations to keep in … -
How Can I Protect My Retirement Savings from Market Volatility?
We’ve been receiving a lot of questions lately about how to best protect your retirement savings against stock market volatility. It’s easy to let recent fluctuations in the market shake your conf… -
What Should I Watch Out for When Reviewing My Retirement Tax Return?
Now that tax season is over and your return is filed, you may be wondering what you need to review in preparation for next year, especially if you’re approaching retirement. In this week’s Mone… -
How Do Tariffs Affect the Stock Market?
If you’ve been tuned into the news lately, you’ve probably heard a lot about tariffs. The current administration’s latest economic push has introduced a wave of uncertainty in the market. But what… -
How Do I Get Out of Debt Fast?
Most people with debt want to get out of it quickly and efficiently. To do that, you first need a clear understanding of your financial situation. Second, you need a clear, actionable plan. In … -
Why Do I Need to Account for Inflation in Retirement?
Today’s question is: What is inflation and why is it important to account for in my retirement plan? Inflation is the rising cost of goods over time. Meaning, it will cost you more money next year… -
How Does a Tax Return Work?
As tax season concludes, it’s a good time to refresh your tax knowledge. In this week’s Money Wisdom Question Series, Ian Fergusson, RICP® discusses how filing your taxes works and why it’s essen…