You can’t save as much as you want. If your mortgage is paid, the student loans paid off, the children self-sufficient, and your rental income more than enough to live on, you might want put your entire salary into your 401(k). Your income, after all, would then become effectively tax-free until you retire. If you use a traditional 401(k), you’d pay income tax during distribution, but you’d pay nothing until then.
The government is wise to that plan. The limits it places on contributions to a 401(k) plan change from year to year; they rise with inflation. In 2021, the maximum contribution is $19,500, or $26,000 for people aged over 50. Employers can only match those contributions so the total limit that an employee can put in their 401(k) plan each year is $58,000 or $64,500 for workers aged over 50.
Unless you’re a very high earner, it’s unlikely that you’re going to reach those limits. So you’re going to be faced with a much tougher question about the amount that you should save for your retirement. It’s likely to be less than $26,000.
- What Is a 401(k)?
- How a 401k Plan Works
- 401k Contribution Limits
- The Difference Between a 401(k) and a Pension
- The Benefits of a 401k
- Four Alternative 401(k) Plans
- How Employers Should Choose a 401(k)
- What Is an Indexed Annuity?
- 5 Questions Employees Should Ask Before Choosing a 401(k)
- Contributing to Your 401(k) Plan
- Contribution Limits
- Matching Contributions
- Your Age
- How to Set Your 401(k) Contribution Targets
- Calculating Your Social Security Benefits
- What’s In Your 401k Plan?
- Track Your 401(k)
- The Present and Future Value of Your 401(k) and Why You Need to Know Them
- Rolling Over Your 401(k)
- You Don’t Have to Rollover Today
- Moving Your 401(k) to Your New Employer With a Direct Rollover
- Moving Your 401(k) to Your New Employer With a 60-Day Rollover
- Borrowing Funds from Your 401(k)
- Lend Yourself Interest-Free 401(k) Funds
- Borrowing from Your 401(k) to Buy a Home