Retirement savers, rejoice: The IRS just upped the 401(k) contribution limit for 2018, which makes it easier to build your nest egg. In 2018, you’ll be able to contribute up to $18,500 of your paycheck to their workplace retirement plans — that’s $500 above the previous limit and the first time the agency has upped contribution limits since 2015.
That figure includes only what you contribute to employer-sponsored plans like 401(k)s, 403(b)s, most 457 plans and the Thrift Savings Plan for federal employees. The maximum contribution from all sources — your contributions plus whatever your employer puts in on your behalf, such as via a 401(k) match — will also be going up, to $55,000 (that’s $1,000 higher than last year).
While contribution limits to Roth or Traditional Individual Retirement Accounts remain the same at $5,500, there is one key difference on the horizon: Income phaseout ranges are on the rise.
At the very least, try to contribute enough to your 401(k) that you take full advantage of any employer match — that’s free money for your future retirement.
If you and your spouse are not covered by a retirement plan at work, you're allowed to deduct what you contribute to a Traditional IRA from your taxes. However, if you or your spouse has access to a workplace retirement plan, the amount you can deduct phases out based on your income and filing status. Here’s what the new phaseout ranges will be:
- $63,000 to $73,000 (up $1,000 from last year) for single taxpayers
- $101,000 to $121,000 (up $2,000) for married couples filing jointly, where the IRA contributor is covered by a workplace retirement plan
- $189,000 to $199,000 (up $3,000) for married couples filing jointly, where the IRA contributor is not covered by a workplace plan but their spouse is
Whether you’re eligible to contribute a full or reduced amount — or any amount at all — to a Roth IRA is also determined by income. For 2018, the new phaseout ranges will be:
- $120,000 to $135,000 (up $2,000 from last year) for single taxpayers
- $189,000 to $199,000 (up $3,000) for married couples filing jointly
Here’s what hasn’t changed: catch-up contribution limits for those 50 and older. It’s still $6,000 for employer-sponsored plans and $1,000 for IRAs.
TO MAX, OR NOT TO MAX?
Knowing you can save more in your workplace retirement plan is great, but also begs the question: Just because you can stash away $18,500 in your 401(k), should you?
Contributing to a 401(k) is an important step for your financial future. But because of its tax advantages, you’ll usually have to pay a penalty if you need the money before retirement. So don’t max out your 401(k) contribution at the expense of other financial priorities like saving for emergencies or all the fun things you want to do before retirement.
At the very least, though, try to contribute enough to your 401(k) so that you take full advantage of any employer match — that’s free money for your future retirement. Beyond that, think about how much you can set aside for retirement as a whole, and weigh what your goals are.
If you’re unsure where to start, consider talking to a financial professional to weigh your options and figure out what what mix works best for you. Ultimately, retirement is an important goal that shouldn't be put on the back burner — getting proactive about it now can help ensure you stay on the right track for the future.