Every year, the IRS evaluates inflation and other items and decides how much savers can sock away in tax-advantaged retirement accounts. Coming in 2015, there will be higher limits for 401(k) accounts, and the income level for IRA phaseouts will also increase.*
This means you have the chance to put away more for retirement, even if you’re already maxing out your retirement contributions. Here are the details on how you can save more money for your future.
What Are the New Retirement Limits?
The IRS doesn’t usually make big changes to its contribution limits, so this is a nice surprise. Indeed, for the 401(k) and similar accounts, the new contribution limit will be $18,000, up from $17,500. Additionally, those who are 50 ages or older can make extra “catch up” contributions of $6,000 each year — an increase from $5,500.
Those (like me) who contribute to IRAs aren’t quite so fortunate. There is no increase from the $5,500 limit right now, and the “catch up” contribution of $1,000 remains steady as well.
There is, however, a bit of a bone thrown out there. The deduction phaseout on the Traditional IRA starts at $61,000 for singles and $98,000 for those married filing jointly. On a Roth IRA, the income limits for contributors is also on the rise, up to $131,000 for singles and $193,000 for those married filing jointly.
So, even though the contribution limit hasn’t gone up, you might be able to hold out and contribute for another year if you’re approaching high-earner status.
How Can You Find Extra Money?
Of course, the vast majority of workers don’t actually care that much about these limits because it’s not always practical for them to set aside the maximum amount for retirement each year. If you make $45,000 a year, setting aside $18,000 — almost half your income — doesn’t seem feasible.
But that doesn’t mean you shouldn’t boost your retirement contributions for the coming year. In fact, when the IRS announces the increase of retirement contribution limits, we can use this as a good reminder to increase our own yearly contribution.
The IRS is allowing for an extra $500 for 401(k) accounts! So put plans in place to increase your own contribution by $500 in 2015. It doesn’t even have to be that difficult. If you can find an extra $41.67 in your budget each month, you can improve your annual contribution by $500.
When you break it down that way, it seems more doable. In fact, chances are, you could free up an extra $100 each month in your budget, and increase your yearly contribution by $1,200. If you aren’t maxing out your 401(k), do whatever you can to increase your contribution as much as possible.
Can You Set Aside More Than the Max?
If you aren’t able to contribute any more to a tax-advantage retirement account because you are maxed out, it can still make sense to set aside more for retirement.
You might qualify for a Health Savings Account, or you could even put some money in a taxable investment account. No matter how you do it, it makes sense to set aside more money for retirement in the coming year.
So take a minute today to contact your 401(k) administrator or your retirement account manager, and set up higher contributions for the coming year!
Are the new contribution limits good news for you? How are going to find extra money in your budget to put towards retirement in 2015?
Editor's Note: I've begun tracking my assets through Personal Capital. I'm only using the free service so far and I no longer have to log into all the different accounts just to pull the numbers. And with a single screen showing all my assets, it's much easier to figure out when I need to rebalance or where I stand on the path to financial independence.
They developed this pretty nifty 401K Fee Analyzer that will show you whether you are paying too much in fees, as well as an Investment Checkup tool to help determine whether your asset allocation fits your risk profile. The platform literally takes a few minutes to sign up and it's free to use by following this link here. For those trying to build wealth, Personal Capital is worth a look.