HOW MUCH SHOULD I CONTRIBUTE TO MY RETIREMENT ACCOUNTS?
A common question many people ask themselves is how much money they should be contributing to their retirement accounts, such as a 401(k) or an IRA. Some people say 10 to 15 percent of your income, up to the maximum, but it depends on how much money you might need in retirement and how much you can currently afford to put away. The earlier you start the better. It is never too early to start saving for retirement.
Employer 401(k) Plan
Should I Contribute to my 401(k) plan at work? The answer is YES. When it comes to your 401(k), try to maximize the benefit of your employer match. Every company has their own set of rules regarding employer match, but the idea is that an employer will match an employee contribution into their 401(k) plan up to a certain percentage. So if you have an employer who does a company match for 401(k) contributions, figure out what that percentage is and then make sure you are contributing that amount into your 401(k). In 2019, you can contribute up to $19,000 towards your 401(k). And, if you are age 50 or older, you can contribute an additional $6,000 which brings your total contributions up to $25,000. Your employer contributions would be in addition to your contributions, which means you could be saving more than $25,000 a year just by maxing out your contributions to your employer 401(k) plan.
IRA and Roth IRA
Can I still have a traditional IRA if I contribute to my 401(k) plan at work? The answer is yes. The 2019 limit for contributions on IRAs and Roth IRAs are $6,000. If you are age 50 or older you can contribute an additional $1,000, which brings your total up to $7,000. The $7,000 is a total amount that can be contributed to both an IRA and a Roth IRA within the same year. You can not contribute the maximum to each account as that would go over the IRA limits. But, you are able to contribute the maximum to your 401(k) as well as the maximum into an IRA or Roth IRA which would bring your total yearly contributions to $32,000. There are limits when it comes to Roth IRA contributions and limits when it comes to IRA deductions for taxes. These limits are based on your gross income.
Not everyone can max out their contributions each year and that is okay. The idea is to contribute as much as possible without hindering your current lifestyle. You need to be able to pay the bills, so make sure you figure out what the right balance is for you. Schedule a meeting today to learn more about how much you should contribute to your retirement accounts.