As you know, the IRS raised contribution limits on some retirement plans. This is good news, because the more you can sock away, the more compound interest works for you. Additionally, depending on the type of account you have—contributions are tax-deductible, which can decrease your income tax liability at the end of the year.
Quite often, we don’t have any reason to thank the IRS. Just seeing that acronym or hearing it said can cause one a bit of undue stress. From dollars owed to deadlines imposed, the IRS’ rules and regulations stipulate that we comply—or else! So, when those powers-that-be deliver good news we all breathe a sigh of relief! This year (and thanks to inflation), that good news comes in raised contribution limits for a few qualified retirement plans.
Which plans have higher contribution limits in 2019?
Contributions into IRAs in 2019 rose from $5,500 to $6,000. However, the $1,000 catch-up contribution remains the same for those 50 years and older. (Bear in mind that while contributions into your traditional IRA are tax-deductible, those to a Roth account are not.)
Elective deferral contributions to 401(k)s, 403(b)s and most 457 plans increased, as did the fed’s Thrift Savings Plan. The limit in 2018 for these was $18,500 but rises to $19,000 in 2019. Here again, the catch-up contribution remains at $6,000 if you are 50 years and older.
There are some new income phaseout ranges you should be aware of, along with a saver’s credit. Speak with your tax advisor to find out if you qualify.
Max out your contribution limits
Because we are passionate about retirement saving, we always urge you to max out your contribution limits every year. Doing so increases the investing power of the account, which has a direct effect on the growth potential of the account. The more funds you amass in your IRA, the more you can diversify your investments—and the better your chances are of affording that lucrative asset that has promising returns.
Compound interest is your friend
Additionally, compound interest plays a big game here, too. This is where your account earns interest on the interest it earns each year. The reality is that the younger you are when you begin saving for retirement, the more compound interest works for you. However, it’s not to be disregarded at any stage of retirement planning. After all, it’s what we call “free money,” and that potential should not be ignored. Try out this compound interest calculator to see exactly how it works.
If you want to learn how you can use a self-directed IRA and choose alternative investments to build retirement income, contact Advanta IRA today.