Retirement Contribution Limit Changes and the Race to the Finish Line

BY: Jeff Supple

Cost of living increase will kick in during the 2019 tax year which means individuals can save more money in tax-advantaged plans prior to their retirement. 

Here are some key numbers:

Annual salary deferral limits in plans such as 401(k), 403(b), 457 and Federal Government Thrift Savings plan have increased to $19,000 from $18,500. This does not include contributions from employers such as matching contributions or profit-sharing contributions. 
The catch-up contribution amounts available for employees aged 50 and older remains unchanged at $6,000.
The IRS section 415 limit has increased from $55,000 to $56,000. This is the total amount that can be put away in a qualified retirement plan for the benefit of an employee (sum of employee contributions and employer contributions)
IRA and ROTH IRA annual contribution limits have increased to $6,000 up from $5,500.

Catch-up contribution strategy

Many employees that are 50 and older have most of their assets in pre-tax assets within their 401(k) plans which means that when they make withdrawals in retirement, they will be taxable.  In order to build up the "tax-free" bucket of money they should consider designating their catch-up contributions as ROTH if their plans allow it (majority of plans now offer this).  This way they can keep the same annual tax deduction from pre-tax deferrals.

What difference does the extra contributions make?

If you add an additional $6,000/year from age 50 to 65 earning on average 7% per year you will have an extra $150,774 in their retirement coffers.  It's never too late!

Want to discuss more about your retirement or contribution strategies? Contact our our Wealth Management Team to discuss your strategies.


Jeff Supple

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