![]() ![]() ![]() Once you turn 50, add another $6,500 to that limit annually while you continue to work.For each year that you're able, aim to hit the $19,500 limit. If you do exceed it, the IRS might hit you with a 6% excessive-contribution penalty.) 401(k) Retirement Savings TipsĪdvice for maximizing your 401(k) savings: (Note: If you invest in both a 401(k) and a Roth 401(k), the total amount of money you can contribute to both accounts can't exceed the annual limit for your age, either $19,500 or $26,0. However, you might be able to avoid RMDs if you can move the money from a Roth 401(k) into a Roth IRA, which isn't subject to required minimum distributions. You'll also be required to take minimum distributions from a Roth 401(k) once you turn age 72. You can withdraw contributions and earnings tax- and penalty-free if you're at least age 59 1/2 and have owned the account for five years or more. Contributions go into a Roth 401(k) after you have paid taxes on the money. These accounts combine features of Roth IRAs and 401(k)s. "In that case, it makes sense to save on a pretax basis and defer income taxes until retirement," Brennan says.Įmployers have been increasing tax diversification in their retirement plans by adding Roth 401(k)s. ![]() For example, someone in the 32% or 35% tax bracket may be able to retire in the 24% bracket. Roth 401(k)sĪccording to Melissa Brennan, a certified financial planner in Dallas, a 401(k) works best for someone who anticipates being in a lower income tax bracket at retirement than they're in now. 4 Reasons 401(k) Plans Still Make Sense Traditional 401(k)s vs. ![]()
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