In great news for those saving for retirement and looking to grow their investments, Americans will be able to contribute more to both their IRA and 401(k) in 2019.
The Internal Revenue Service announced that the 401(k) limit was up $500 from $18,500 in 2018 to $19,000 in 2019.
This increase applies to the 401(k) plans as well as 403(b) plans, most 457 plans and the federal government’s Thrift Savings Plan.
If you’re over 50, that’s even better news, as the the catch-up contribution limit for employees 50 and older is $6,000, which is the same as last year, but it does mean that this year those employees can put as much as $25,000 ($19,000+$6,000) in their 401(k) plan this year.
When it comes to IRAs, the Internal Revenue Service is lifting that contribution limit as well. Individual retirement accounts, or IRAs, see their first bump in six years, to $6,000 up from $5,500 in 2018. Again, investors older than 50 can save as much as $7,000 in an IRA by utilizing the catch-up contribution limit, which, this year, remains at $1,000.
IRAs and Compound Interest
Obviously, via the magic of compound interest, younger workers are poised to benefit even more if they max out their contributions.
The impact of the new IRA contribution limit is even bigger for someone who is younger. For someone at the age of 35 with $100,000 in their IRA so far, the extra decade of $6,000 annual contributions until age 65 results in a portfolio worth more than $2,700,000. Under the old contribution limit, the same investor would have been missing out on an extra $82,000 in their account.
Most Americans Miss Out on Retirement Benefits of 401(k)s
While the raised limits are great news, many Americans are expected to skip taking advantage of it. The Bureau of Labor Statistics says that only about 54 million American workers put any money at all into a 401(k) plan in 2015. Compared to the 150 workers on file that year, those numbers aren’t great.
Financial firm Vanguard said that only ten percent of participants dropped the max into their 401(k) contributions in 2016, which itself was a drop from 12% in 2013.
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