Considering an additional $500 per year can become $47,000 in the long run, you may be excited about the new maximum contribution opportunity for 401Ks and IRAs.
Maximum 401K contributions have been increased from $18,500 to $19,000 for 2019. For anyone 50 years of age or more, you can now contribute up to $25,000 per year. These maximum contributions are also applied to 403b and 457 plans. While it may seem like a relatively small increase in maximum contribution, over the course of 30 years, the $500 yearly contribution at 7% interest will be worth about $47,000.
For Traditional and Roth IRAs, the limit has increased $500 as well, with the maximum contribution rising to $6,000. Anyone that is older than 50 is allowed up to $7,000. This is the first increase in maximum contribution for an IRA since 2013. The increases are often related to inflation values and increases in the cost of living. For Roth IRAs, the phase out on contributions limits begins at an annual gross income level of $193,000 and is cutoff at $203,000 for those filing jointly ($122,000 and $137,000, respectively for singles). In contrast, Traditional IRAs do not have a maximum annual gross income threshold, but tax deductions on contributions for Traditional IRAs may be affected by your gross income. You should be aware of the cutoffs if you or your family is close to crossing the maximum income line, as you may need to create a plan for where your investments will go instead.
In general, between your 401K and IRA, your maximum yearly contribution across all three avenues would be $25,000. If you are above the age of 50, then the maximum yearly contribution across all options is $32,000. In most cases, investors should be looking for ways to maximize their contributions into their retirement accounts, so these increased contribution amounts could help savers reach their retirement goals a little bit earlier.
For more information about maximum contribution limits, check out the.