Workers can raise 401(k), IRA amounts
Thanks to inflation, workers will be able to save an additional $500 in their tax-sheltered 401(k) and individual retirement accounts next year, the Internal Revenue Service announced Thursday. Employees who participate in 401(k), 403(b) and most 457 plans, and the federal government’s Thrift Savings Plan, can contribute a maximum of $19,000 in 2019, up from $18,500 this year. Before that, it was stuck at $18,000 for three years. Those 50 and older can contribute an additional $6,000, the same “catch-up contribution” as this year.
The limit on contributions to a regular or Roth IRA rises to $6,000 from $5,500, the first increase since 2013.
Those 50 and over can contribute an additional $1,000 to an IRA, same as this year. Unlike the other limits, the IRA catch-up is set by law and only goes up when Congress raises it. The other limits are indexed to inflation, but go up only when the accumulated increase hits $500.
Most workers don’t come close to maxing out their retirement plans. Only 8 or 9 percent of those participating in 401(k) plans run by Fidelity Investments contribute the max; their average contribution is just over $6,000. “If you can (max out), you should. If you can’t max out every one, make sure you order them correctly,” said Jeff Levine, a financial planner with BluePrint Wealth Alliance.
If your employer matches 401(k) contributions, contribute enough to get the full match first. After that, if you have a health savings account, max that out, because it has triple tax benefits. Contributions are taxdeductible; they typically grow tax-free and remain tax-free when you take them out if used for qualified medical expenses.
After that, contribute to your 401(k) or IRA if you can. If your income is too high, you cannot contribute to a Roth IRA. If your income is too high and you or your spouse is active in a retirement plan at work, you may not be able to deduct your contribution to a regular IRA, although you could still make a non-deductible contribution, Levine said.
These income limits are also going up next year. To see the new limits, go to https://bit.ly/2P6gF7B.