In recent years, thanks in large part to pensions becoming
less widely available, 401(k) plans have become the option of choice for those
planning for their retirement. These plans, while beneficial, can sometimes cause
confusion. Most people don’t know how much to put into these accounts or
whether they should even have one, but with a little advice from us and your
financial advisor, you can make smart decisions about how much to contribute.
Busting the Match Myth
Most employers are willing to match 401(k) contributions but
only up to a certain amount, usually around 6%. Thus, many people who have
these plans only contribute up to that 6% mark and then stop.
It’s important to know, however, that it’s usually best to
contribute more than that. In most cases, the IRS allows up to $18,000 in
elective 401(k) deferrals. Those who are 50 or older can even contribute more
if they wish, currently a whopping $6000 more!
Know Your Contribution Limit
While you do want to contribute more than 6% if you can,
it’s important that you do know the limits the IRS has put in place for
contributions. Do bear in mind, however, that though these limits apply to most
people in the respective categories, it’s always best to check with your
investment advisor as there may be special considerations in your case:
Elective Deferrals Limit: $18,000
Total Contribution Limit for 50+: $59,000
Total Contribution Limit with employer contributions:
$53,000
As mentioned, an investment advisor really is your best bet
for making the most of these tips and for making the most of your 401(k) in
general.
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