Are you saving enough to afford the lifestyle you want when you retire? Now is a good time to check whether you’re taking full advantage of all your retirement savings opportunities, while you still have the rest of the year to adjust your contribution levels.
Employer-sponsored retirement plans
Join the plan - If you haven’t already, join your employer’s retirement plan as soon as you can to increase your retirement savings. Many retirement plans have quarterly or semi-annual entry dates. Contact your employer to find out when you can start participating in the plan, and then join on the next entry date.
Make salary deferral contributions - If your employer’s plan allows you to contribute, remember that you can decrease your taxable income by making pre-tax salary deferral contributions. You may also qualify for the Saver’s Credit for contributing to your plan. Many plans allow salary deferral elections to be submitted at any time, so review your contribution rate to ensure you are contributing as much as the plan allows.
The maximum annual salary deferral contributions allowed for 2020 are:
- $19,500 to 401(k) or 403(b) plans ($19,000 in 2019)
- $13,500 to SIMPLE plans ($13,000 in 2019)
If you're age 50 or older by the end of the year, your plan may allow you to make additional catch-up contributions of:
- $6,500 in 2020 and $6,000 in 2019 to 401(k) or 403(b) plans
- $3,500 in 2020 and $3,000 in 2019 to SIMPLE plans
Your employer may match some of your salary deferral contributions. For example, your employer might contribute 50 cents for each dollar that you contribute to the plan from your salary up to a certain amount. Contact your plan administrator for details and adjust your salary deferrals to take full advantage of matching contributions.
Individual Retirement Arrangements (IRAs)
For 2019 and 2020, the maximum total contributions you can make to all of your traditional and Roth IRAs is:
- $6,000 ($7,000 if you are age 50 or older), or
- your taxable compensation for the year, if your compensation was less than this dollar limit.
Some factors may limit or eliminate your ability to contribute to an Roth IRA or claim a deduction for your traditional IRA contribution (for example, your age, modified adjusted gross income, filing status and amount of compensation). See IRA Contribution Limits. The amount of traditional IRA contributions that you can deduct from your taxable income depends on whether you or your spouse were covered for any part of the year by an employer retirement plan if your income is above certain thresholds.
Remember, saving for retirement requires planning! That is why you should periodically review your retirement savings goals, savings options and annual contributions to maximize your retirement savings.