Your 401(K) Annual Contribution Limits
Nick
Carroll

Source: Adobe Stock

Updated: June 2, 2019

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With every paycheck, you should be making regular contributions to your retirement plan.  Most employers offer such a plan for helping their employees save for their future.

​Fortunately, if you are saving regularly, you can increase your 2019 annual contribution for a 401(k), 403(b), most 457 plans, or the Thrift Savings Plan by an additional $500 for a maximum of $19,000.  This is an increase from last year's $18,500 limitation.  Below is an annual contributions chart of how much to save regularly every month to avoid exceeding the yearly limit.

Your workplace may offer you the option of making contributions for a 401(k) and a Roth 401(k) which are essentially the same plan.  The only difference between the two is the tax treatment.  Every household is different and you should research and make a decision which option (pre-tax or post-tax) is the better financial decision. 

Also Read:5 Reasons to Hire a Financial Advisor

If your employer matches contributions, you should take advantage for two reasons.  First, it is free money the company is giving you.  This will boost your nest egg accumulatively while potentially allowing it to appreciate.  Second, it may have tax deductions.  For instance, let us assume your federal and state income tax rate is 30%, if you invest $100 into your 401(k) and your company matches it with $25, your investment only costs $70, not $100 (30% of $100).  


Taking this a step further and you will find that if the market dropped 20%, you would still be ahead on your original investment.  The company's matched contribution can act as a protective cushion for your investments.

 

You may be asking yourself by now, "Where should I be investing?"  The answer is, "It depends."  Every investor has different time horizons, risk tolerance, financial goals, etc.  That is why I highly urge my readers to sit down and discuss your options with a certified financial planner. 

The best answer that many financial experts typically agree on is that everyone should be diversified.  Having a mix of sectors, markets, bonds, and stocks can limit your risk exposure from events that we saw recently in the past from the dot-com crash to the financial recession. 

Whether you have established a 401(k) recently or have been investing for quite some time,  a financial planner (advisor) can discuss your options about liquidity, tax advantages, avoiding fees and risk, while seeking high returns and capital appreciation. 

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