This is the post where I did the math so that you don’t have to! Did you max out your retirement accounts last year? If you’re like most Americans, probably not. The New Year is right around the corner and now is a great time to increase your contributions on your retirement accounts. If you’re wondering which account you should contribute to, I have a post on that: Should I Contribute to a 401(k) or Roth IRA? The contribution limits for Roth IRAs, 401(k)s, 403(b)s and SIMPLE IRAs didn’t change this year, but the limit did change for SEP-IRAs. If you’re feeling ambitious this year and want to be ahead of your millennial peers, here is how you can max out your retirement accounts for 2014.
Roth IRA Max = $5,500
If you contribute monthly to your Roth IRA and want to hit the $5,500 max, then start the year off right by contributing $458.33 per month. You’ll be just a few pennies shy, but this will get you close. You could also round to $450 a month and throw in an extra $100 at some point during the year to hit the $5,500 max. (If you’re over age 50 there’s a $1,000 catch up contribution, so tell your parents). To contribute to your Roth IRA with each paycheck the amount would be $229.16 (if you’re paid twice a month) or $211.53 (if you’re paid bi-weekly). You’ll be a few cents away from the max, so you may want to change your last contribution of the year. If you’re a high-income earner, make sure you check with your accountant to verify that you qualify before making a contribution. The phase out range has changed and you can read more about that here.
401(k) and 403(b) Plans Max = $17,500
Most people contribute a percentage of their salary to their 401(k)s or 403(b) plans, but if you want to hit the maximum contribution by the end of the year, then I recommend you contribute a specific dollar amount per paycheck. If you are paid twice a month then you’ll have 24 paychecks per year, which means you should set up your contributions for $729.17 per paycheck in order to hit the max. If you are paid bi-weekly, you’ll receive 26 paychecks per year, therefore, you’ll only need to contribute $673.08 per paycheck to hit the max. (The catch up contribution is an additional $5,500 per year). If you’re paid monthly, the number is $1,458.33 per month to hit the max.
SIMPLE IRA Max = $12,000
If you work for a small employer, you may have a SIMPLE IRA as opposed to a 401(k) or 403(b). If you are paid twice a month then you should contribute $500 per paycheck to hit the max or $461.54 if paid bi-weekly, and $1,000 if paid monthly.
SEP-IRA Max = 25% of compensation up to $52,000
If you’re self-employed and have a SEP-IRA plan, the maximum contribution increased by $1,000 per year. Remember, this amount is limited to the lessor of 25% of your income or $52,000, so if you make over $260,000 the most you can contribute is $52,000.
The Saver’s Tax Credit
Need another incentive to contribute to your retirement accounts? Depending on your income level, you may qualify for the Saver’s credit by contributing to a retirement account. Here’s the breakdown for income levels in 2014:
- Married Filing Joint – less than $60,000
- Head of Household – less than $45,000
- Single – less than $30,000
The Best Time to Start is: Now
If you haven’t started saving for retirement, now is the time to start! Find out if you qualify for a company match on a retirement plan through work and contribute at least enough to get the match. If you’re already doing that, increase your contributions by a few percentage points starting in January and set a calendar reminder to increase them again in six months. If you’ve been meaning to start a Roth IRA for a few years and keep putting it off, take an hour to research low cost brokerage firms and set up a new account. There’s no better time than the present.