401(k) 2019 Limits: How Much More Can You Contribute to Your 401(k)?
There’s not always good news about the stock market these days, and if you’ve checked your 401(k) balance lately, chances are you’ve seen a few declines in its value. The good news is that retirement accounts are meant to be long-term investments which can withstand the volatility of the market.
The other good news is that the IRS has increased the amount of money you can contribute to your 401(k) in 2019. Keep reading to learn more about 401(k) 2019 limits and how this increase can benefit you.
What is a 401(k)?
If you’re just starting out in the world of retirement accounts, it’s important to understand what a 401(k) is. A 401(k) is an employer-sponsored savings and investment plan. The contributions are saved tax-free, and are only taxed when they are withdrawn.
Many companies offer these savings plans to employees as part of their employee benefits packages, with some employers even contributing to the plans.
401(k) 2019 Limits: How Much Can I Contribute?
In 2018, the contribution limit to 401(k) plans was $18,500. For 2019, it is increasing to $19,000. If you are age 50 and older, you also have the opportunity for an additional $6,000 contribution to “catch up.” This means that employees 50 years and older are eligible to put as much as $25,000 into their 401(k).
The limits for defined-contribution plans, which includes 401(k)s, is now $56,000, a $1,000 increase from 2018. This means that employer and employee contributions to these plans can be as much as $56,000 ($19,000 from the employee and $37,000 from employers). If your employer matches this money, your contribution total might be even higher.
In addition, the contribution limits to individual retirement accounts (IRAs) is also increasing $500, from $5,500 in 2018 to $6,000 in 2019. Workers who are older than 50 years can also make an additional catch-up contribution of $1,000 to their IRA.
Why Should I Increase My Contribution?
An increase of $500 might not seem like a lot. But putting an extra $500 in your 401(k) can have a big payoff later, especially if you’re young.
Investing an extra $500 annually for the next 30 years could result in over $45,000, assuming an annual return of 7%. That $500, which doesn’t seem like much, suddenly becomes a nice boost to your retirement income.
Time and compounding interest are your best tools to grow your retirement income. The increase in the 401K 2019 limits might not be applicable to you just yet, but as you get older, increase your income, and decrease your debt, you might find that you can max out your contributions.
The Bottom Line
If you can afford to max out your 401(k), the extra $500 could make a difference in your retirement income. If you can’t afford to max it out, even increasing your contribution 1% each year can have a big impact.
Are you a business owner that needs help understanding 401(k) plans? Do you need assistance implementing a client-sponsored plan within your business? Contact the professionals at GIGA Solutions.
Our PEO and HR Outsourcing Brokerage helps business owners gain access to retirement programs, along with HR support, assistance with employment law, and employment liability coverage and management.