Every year we watch for the updated IRS limits on how much we can contribute to our various retirement plans with the primary purpose of reminding our clients that they should reach for the limit and max out what they can put away tax-advantaged, towards their retirement goals. This year, the IRS did not change the limits from 2015, so 2016 limits are the same, but we still want to help ensure you are on track to contribute as much as you can this year.
For 2016, you can contribute up to $18,000 to your 401(k), 403(b), or other defined contribution plans. If you are age 50 plus, you can add a bonus to your savings called a “catch-up” contribution, which is $6,000 this year, for a total of $24,000. Catch-up contributions apply if you are turning age 50 anytime during the calendar year. Many employers match a portion of your contribution to accounts, such as a 401(k). Accordingly, even if you cannot max out your retirement account to the full limit, consider attempting to contribute up to the amount that will maximize your employer match.
There are other types of qualified plans available to self-employed individuals, such as SIMPLE or SEP IRAs and individual 401(k) plan accounts. To see the limits for 2016, click here for the IRS webpage that outlines the standard limits.
Additionally, you may also be eligible to contribute to a Traditional or Roth IRA depending on certain factors such as the amount of your modified adjusted gross income or whether or not you participated in a work sponsored retirement plan. The limit for 2016 for IRA contributions is $5,500 with a $1,000 catch-up if you are 50 and older. Remember to talk to your CPA about what is allowable for you.
We all felt the increased volatility in the markets last year and we are anticipating more of the same in 2016 (as already experienced in January). Remember that your regular on-going payroll contributions are dollar cost averaging into the market, which lowers your overall average cost and allows you to take advantage of the volatility in the market.
Not sure of what retirement savings plan is optimal for you? This is where we can come in and analyze your personal retirement strategy while coordinating with your CPA to make sure that you are on track with your savings to meet your retirement goals.
Kim Butler, CFP®
Associate Financial Planner