Contribute More to Your Retirement Account in 2020

Financial strategies sometimes shift over time, but one rule has stood the test of time: You really can’t save too much for retirement! If you wisely meet the contribution limit of your retirement account each year, congratulations on making a responsible choice for your future. And we have good news for you: In 2020, you can save a bit more.

The contribution limit for 401(k) and other qualified retirement accounts has increased from $19,000 to $19,500 next year. If you’re age 50 or over, as of 2020, your catch-up contribution limit has also risen from $6,000 to $6,500. Theoretically, you could stash as much as $26,000 in your retirement account next year.

That’s an extra $1,000 for those over 50, or $500 if you haven’t yet reached that milestone. That might not sound like a lot, but as interest compounds over decades every increase to the contribution limit will matter in the long run.

Of course, establishing a stream of income for the future is not the only reason to contribute to a 401(k). Since your contributions are made on a pre-tax basis, you effectively lower your income tax liability by the amount of your contributions each year. Plus, you won’t have to pay taxes on that money until you reach retirement and begin taking withdrawals from your account.

If you haven’t already taken this important step, make sure to contact your human resources department in early January. Adjust your paycheck withholding so that you will make the maximum contribution for 2020, if possible.

At the very least, plan to contribute enough to reap the maximum matching funds that your employer offers. It would be a shame to miss out on free money.

If you have any questions about contribution limits, tax benefits, or any other topic regarding retirement planning, just give us a call. We’ll be happy to help you examine your situation and plan for a bright future.