Setting financial goals and sticking to them is crucial for maintaining long-term financial success. Fintech platforms and various tools have made investing and saving incredibly easy. From automated withdrawals and contributions to seamless expense tracking and budget calculation, there’s never been a better time to become more financially literate and take control of your financial future.
However, despite the plethora of options available, it’s still easy to succumb to impulsive spending driven by FOMO and YOLO mentalities. Nevertheless, amidst life’s uncertainties, one thing we can control is maximizing our retirement accounts.
The principle that “Time is greater than timing” in the markets has proven effective. When it comes to contributing to investment accounts up to the set maximum contribution limits, it feels like receiving the best reward: more time and often free money from employer contribution matches. Ignoring these limits for retirement accounts can lead to financial pitfalls by leaving free money on the table.
How to Max to The Match
Maximizing means contributing to the legal limit in your retirement plan each year. The limit for an employer-sponsored retirement plan like a 401(k) in 2024 is $23,000 or $30,500 for those over 50, increasing by roughly $500-$1000 annually. Unlike other scenarios where reaching the maximum might not be prudent, adhering to retirement account limits is crucial for long-term financial security.
Let’s focus on one retirement account in particular: the Roth IRA. This account presents a unique opportunity for investors, particularly young individuals and those in lower tax brackets. As a post-tax account, the Roth IRA allows for tax-free growth and withdrawals in retirement, making it an attractive option for long-term wealth accumulation.
Retirement plans, such as individual IRAs, employer-sponsored 401(k)s, or individual Roth IRAs, are powerful tools for saving for the future because they have maximums built in each year. Adhering to maximum contribution limits serves as a valuable tool for staying on track with financial goals, incentivizing consistent saving and investing, particularly for employer-sponsored 401(k) plans, where employer matching offers an additional incentive to maximize contributions.
To recap, for 2024, here are the contribution limits:
- IRA: $7,000 for those under 50, $8,000 for those 50 and older.
- 401(k), 403(b), 457: $23,000.
Just as setting goals in other areas of life promotes accountability and discipline, understanding the limit to what you can contribute incentivizes consistent saving and investing. This holds particularly true for employer-sponsored 401(k) plans and a Roth IRA which you contribute post-tax funds into. Adhering to maximum contribution limits serves as a valuable tool for staying on track with financial goals, and I encourage you to pay closer attention to these maximums this time.