Maximum or Minimum Contributions?

It’s a new year with a whole calendar ahead of you. This is the year that will be different, that you set ambitious goals and actually achieve them. What are those ambitious goals? How do we achieve them? Will they leave me feeling so overwhelmed and helpless they are abandoned?

Setting goals is an effective way to stay on track for retirement. One of the best ways I see investors succeed is by using IRS maximum contributions as their goals. For example, in 2019 you may contribute $19,000 to a 401k regardless of your income (this is up from $18,500 in 2018). If you are over age 50, you may contribute an additional $5,000. To make this goal a reality, let’s assume you are paid bi-weekly or 26 times a year. To max out your plan you would defer $730.77 into your 401k every pay period. At the end of the year, you could have $19,000 in your 401k. Automatic salary deductions are a great way to stay on track. For many people, maxing out your 401k might be 20% of your income. If so, this savings rate will have you well on your way to retirement.

Now, I understand that maxing out a 401k can feel like an aggressive goal or maybe your job doesn’t offer one. That’s okay because there are other “minimums” you can focus on meeting. IRA’s are a very popular way to save outside of your employer plan. In 2019, you may contribute $6,000 a year (up from $5,500 in 2018). If you are married, this is $12,000 per couple! While IRA’s typically are not funded through payroll deductions, most investment companies will allow you to set up automatic monthly investments. Another perk to IRA’s is they can be funded at any time throughout the year, up until that year’s tax-filing deadline. So that means you can fund an IRA for 2018 up until you file your taxes in April of 2019. If you haven’t funded an IRA for last year yet, there is still time!

I’ll wrap up with one other area of “minimums.” In the era of high healthcare costs, many employers are sponsoring Health Savings Accounts (HSA) to help shoulder the expense. These accounts also grow tax deferred just like an IRA and are used to reimburse you for any medical expenses incurred. Any money not used is carried forward until it is needed. In 2019, a married couple may contribute $7,000 to an HSA. This can be a great way to stash some cash in your healthier years to prepare for the inevitable effects of aging.

There are a lot of ways to set goals for yourself. It’s important that the goals be achievable, not overwhelming, and have a purpose. Saving just to save may leave you feeling uninspired. Delaying gratification is not easy, so it is important to find the right balance. Working with a CERTIFIED FINANCIAL PLANNERTM professional can help you be aware of contribution limits for your accounts and the best way to allocate your savings.

The hardest part is getting started. If you’ve never saved before, start small, and build from there. Find a way to feel connected to your plan to help stay the course.

Happy Investing.