We’re halfway through the year. Are you on track to maximize your retirement savings? Here are the 2020 contribution limits for retirement plans.
Retirement Plan Contribution Limits for 2020
Last year, the IRS increased the 2020 contribution limits for retirement accounts. For employees participating in 401(k) plans, the IRS will allow contributions of $19,500, a $500 increase from last year. The increase also applies to most other retirement plans, such as 403(b), 457, and Thrift Savings Plan participants. In addition, if you are over the age of 50, you may contribute a catch-up contribution on top of that amount of $6,500, for a total annual contribution of $26,000.
For IRA and Roth IRAs, the 2020 contribution limits are $6,000, unchanged from last year. The catch-up amount for account owners over the age of 50 remains $1,000, for a total contribution of up to $7,000.
If you have been maximizing your contributions to your retirement accounts through the use of systematic, monthly deposits, and you did not increase those deposits from 2019 to 2020, you may be falling short of the maximum allowable savings amount.
Take Advantage of Employer Match
Many 401(k) savers will contribute a certain percentage of their income each year to their 401(k) accounts. If possible, consider making a contribution large enough to take full advantage of an employer match, if one is provided. These matching contributions can go a long way towards beefing up your retirement account.
Maximizing Your Savings
For example, let’s say you start a new job, and you are contributing 4% of your $80,000 salary to your 401(k), paid twice a month. Your employer offers a matching contribution of 50% of your contributions up to 6% of your salary. Each pay period, you contribute $133.33, and your employer contributes $66.67. Let’s assume that you can earn 6% per year on these savings. After 15 years, your account balance would be $116,547.38. If, however, you had contributed 6% of your salary, thereby taking full advantage of the employer’s matching contributions, the balance at the end of 15 years would be $174,821.07.
Now, let’s assume that not only do you start out contributing 6%, but you will increase your savings rate by 1% each year until reaching 10% in the fifth year of savings. After 15 years, your account balance would be $234,542.10, which is more than double the balance in the first example!
It’s Worth the Adjustment to Save
By saving at least what the employer will match, you can make a significant impact on your retirement savings. It may be difficult to adjust your savings rate dramatically at first, which is why increasing your contributions slightly but systematically over time may be an easier concept to adapt.
Our goal at Barber Financial Group is to educate and inform so individuals can make deliberate decisions about their financial life. You can find educational materials life videos, reports, and blog articles on our Education Center. There is information on all sorts of retirement topics ranging from taxes to Social Security. We’re also available to discuss your retirement plan anytime. Give us a call at 913-393-1000 or schedule a complimentary consultation below and we will be in contact with you.
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Investment advisory services offered through Barber Financial Group, Inc., an SEC Registered Investment Adviser.
The views expressed represent the opinion of Barber Financial Group an SEC Registered Investment Advisor. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Barber Financial Group does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.