It’s important to know how much you can contribute to various retirement plans.

Similar to my post in 2016, I have summarized many of the retirement contribution limits for 2017. This is not a comprehensive list, but it does cover the questions I receive most often. And, as I mentioned before, your circumstances may be unique, complicated, or different, so you should double check these limits and your specific plan(s), account(s), and situation before contributing.

 

401(k), 403(b), and TSP Contributions

 

IRA Contributions

  • Maximum IRA contribution limits:
    • $5,500 if under age 50
    • $6,500 if age 50 or older as of December 31, 2017
  • This is a combined limit, meaning you can contribute to both Traditional and Roth IRAs but not more than $5,500 (or $6,500 if 50+) IN TOTAL
  • Stated another way, you may NOT contribute the maximum amount to BOTH a Traditional IRA and a Roth IRA
  • Note: You CAN contribute the maximum amount to both a 401(k) AND an IRA (see the example below)
  • IRA contributions may be made until April 15, 2018 for calendar-year 2017 contributions
  • Roth IRA contributions are never tax deductible
  • Traditional IRA contributions may be tax deductible, depending on your income

Roth IRA Eligibility

  • Single: income of $118,000 or less
  • Married, Filing Jointly: income of $186,000 or less
  • This gets a little bit complicated, but if you make too much money you are no longer able to contribute to a Roth IRA. Here’s the simplified way to think about it:
    • If your tax filing status is single, you can contribute the maximum amount if you make less than $118,000 in 2017. (If you make more than this, you may be able to contribute a partial amount, but $118k is the number to remember).
    • If your tax filing status is married, filing jointly, you can contribute the maximum amount if your combined income is less than $186,000 in 2017. (If you make more than this, you may be able to contribute a partial amount, but $186k is the number to remember).
  • Also note that you must have earned income (think of earned income as money received via a paycheck) to be able to contribute to a Roth IRA. Spouses who file jointly but only have one working spouse should ensure that both spouses are eligible.

Don’t Forget

Money saved into retirement accounts is “locked up” until age 59 1/2. In your mind, this should be viewed as long-term money you can’t touch. If you’re also saving for some bigger purchases (such as the down payment on a house), that should be factored in as well, as you’ll want those funds more available than they would be in a retirement account.

 

Example

For many of my readers, one of the best things you can do to save for your retirement is contribute as much as possible to both a 401(k) – or similar plan – and a Roth IRA. Let’s say you’re eligible to contribute to both, complete your taxes with a filing status of single, and are 34 years old. This means you could save $18,000 into a 401(k) on a pre-tax basis and also $5,500 into a Roth IRA with after-tax dollars. This is the maximum amount you could save into retirement specific accounts ($18,000 + $5,500 = $23,500), in this example. That said, nothing is stopping you from saving more in after-tax investment accounts. Of course, your current circumstances, tax bracket, and goals will determine how and where you should save.

If the above example feels completely unmanageable, try these initial steps:

  1. Determine which plans you are eligible for and how much you are contributing already
  2. Try increasing your 401(k) contribution by 1% (if you make $100k, that’s about $83 in additional savings each month – which you might not even notice now, but it will have a big impact over the long-term)
  3. Consider whether you have some additional money you could save every month or if you could cut back on spending somewhere else, and try to save a little bit more than you already do
  4. Next time you get a pay raise, dedicate at least a portion of it to retirement savings, moving you closer to the maximum contribution limits

 

I hope this high-level overview is helpful. Let me know if you have any questions. And happy saving! Your future self will thank you.

Lucy


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