Put Your Raise to Work

Toward the end of the year, many lucky Americans learn that they have earned a raise at work. If you’re expecting to make more money in 2015, it can be easy to get carried away with plans for a new car or a luxurious vacation. But before you let that money burn a hole in your pocket, remember that it’s always a good idea to divert at least part of any windfall into your retirement savings account.

Are you already contributing the maximum allowable contribution to your account? Good news: The IRS recently announced that they have raised the contribution limits for most retirement savings accounts. The new limits for 2015 mean that you can:

• Contribute $18,000 to your 401(k), 402(b), most 457 plans, or Thrift Savings Plan.
• Make an extra “catch up” contribution of $6,000 dollars to the above plans, if you are aged 50 or older, for a total contribution of $24,000.

The IRS occasionally reevaluates and raises these contribution limits in response to the pressure of inflation. As the cost of living rises, we need more money to cover our bills and necessities. Retirees are no different, and yet many senior citizens live on fixed incomes once they retire.

One way to prevent financial difficulties due to inflation in retirement is to reconsider your savings goals periodically during your working years. This means the savings goal you set years ago may seem inadequate as retirement approaches. Luckily, under these new contribution limits, you can save a bit more for retirement in 2015 and subsequent years.

Contact your payroll department at work, and adjust your withholding beginning in January. If you’ve received a raise for the coming year, one of the smartest things you can do with the extra money is to put it to work for you.

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