Due to low inflation, most indexed thresholds for qualified plans don't budge at all in 2016. For example, the maximum deferral for 401k plans remains at $18,000, while IRA contributions are still limited to $5,500. If these "flat" thresholds are frustrating you, here are five steps to help you save more for retirement:
- Max out your 401k contributions
Are you already contributing the maximum amount to your 401k or other qualified plan? If not, set aside as much as you can afford. The closer you move to the $18,000 limit in 2016, the better off you'll be in retirement.
- Take advantage of the company match.
Your employer may match your 401k deferrals up to a stated limit. Typically, the match is 50 cents for each dollar deferred on the first 6% of salary, sweetening the pot year-in and year-out. Don't let this extra saving opportunity slip by.
- Catch up later in life
Federal tax law allows certain retirement plan participants to add "catch-up contributions". For instance, if you're age 50 or older, you can increase the maximum 401k deferral by $6,000 in 2016, for a total of $24,000.
- Supplement savings with IRAs.
Even if you participate in a plan at work, you can still contribute to a traditional or Roth IRA. Plus, you can add a $1,000 catch-up contribution if you're age 50 or older. Just remember your Roth IRA contributions might be limited, depending on your filing status and income. You might also consider converting all or part of your traditional IRA to a Roth. That will give you future tax-free payments, though you'll owe tax currently on the amount converted.
- Plan on working longer.
Depending on your circumstances, you may decide to put in a couple more years on the job to bolster retirement savings. Again, you can benefit from maximizing the extra contributions. Similarly, you might postpone your claim to social security benefits to secure a higher monthly amount.
We have more ideas to help you increase your retirement savings in 2016. Give us a call.