Funding 401(k) and Other Retirement Plans—Early is Best, But It’s Never Too Late to Start
Putting away part of every paycheck for your future is a powerful way to set yourself up for financial success.
If you have a 401(k), 403(b), or 457 plan, you can contribute $17,500 in 2013 and 2014. If you’ll be at least age 50 by December 31 of this year, you can make an additional contribution of $5,500, for $23,000 in total. In most years, the base annual contribution limit increases by $500 (however, in low-inflation periods the contribution limit may not rise).
A Roth 401(k) or 403(b) plan is available too. After-tax dollars fund these accounts (contributions are not deductible), and upon withdrawal in retirement, the original contribution plus earnings are tax-free. Roth 401(k) plans make sense if you expect to be in the same or a higher tax bracket in retirement, since you get no tax deduction for the contribution, and withdrawals will be free of tax to both you and your heirs. In general, it’s a good idea to hold some of your savings in a Roth IRA or Roth 401(k) to allow for cash flow flexibility later on. If you are a small business owner, you can contribute up to $51,000 to a qualified retirement plan in 2013 ($52,000 in 2014).
Through the miracle of compound interest and wise investment choices, you’ll be amazed at how your account will grow.