13 December 2018

IRS Announces 2018 Retirement Plan Contribution Limits

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The Internal Revenue Service has announced cost of living adjustments affecting dollar limitations for retirement plans and other retirement-related items for tax year 2018.  The maximum amount a person can contribute to his or her retirement account is set each year by the IRS after taking inflation into account.

For the year 2018, people can contribute up to $18,500 as an elective deferral to their employer's 401(k) plan. Additionally, if you are age 50 or older, you can contribute an additional catch-up contribution of $6,000.

The 401(k) limit applies to all 401(k) accounts you might have for the current year. If you work at two or more jobs or switch jobs in the middle of the year, then you may need to track your 401(k) contributions yourself to ensure that you don't contribute over the limit.

For people who plan to contribute the maximum allowed, it may be easiest to break the annual limit into equal dollar amounts per pay period. That way, you'll be saving the same amount each pay period and will be dollar-cost-averaging into your retirement investments.

Elective deferrals are treated separately from the employer's matching contributions. Elective salary deferrals can be placed into a tax-deferred traditional 401(k) or into a post-tax Roth 401(k) account, or a combination of traditional and Roth as long as the total of all salary deferrals are equal to or less than the annual maximum. Matching contributions from the employer are limited to 25% of your salary (or 20% of your net self-employment income if you are self-employed). Matching funds are always contributed to the tax-deferred portion of your 401(k) plan. The total of your elective salary deferral plus employer matching contributions is limited to $55,000 for the year 2018.

Click here to view the IRS contribution limits announcement.  
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