Can I Max Out My 401(k) Contributions?

If you are worried about maxing out your 401(k), you are unlikely using the excuses that can limit the amount you contribute to retirement each year. One of the most basic retirement investing options is your 401(k) account. The retirement contributions come out automatically each month. You do not need to worry very much about the fund since you have little to no control over the types of funds that it is invested in. This makes it easy to grow your retirement quickly and to leave the money alone until you retire. Although you should always invest up to your employer’s match, you may reach a point when you mac out the amount that you are allowed to contribute each year. You should still consider other investing options when that happens.

What Are My Limits on My 401(k) Contributions?

Jamie Grill/Getty Images

In 2016, the contribution limits for your 401(k) is $18,000. The amount may go up as the cost of living goes up. This means that you cannot contribute more than that each year to your 401(k). However, your employer’s match is not included in that amount. The total amount including your employer’s match cannot exceed your salary or $51,000. This amount may go up as the cost of living goes up, as well. You cannot have more contributed to your 401(k) then you actually earned during the year.

Should I Max Out My Contributions?

You may want to max out your contributions each year, but it really depends on where you are with your other financial goals. If you are currently in debt, you should only contribute up to the match until you have paid off the debt. Then you can increase the amount as you save up an emergency fund and for a down payment on your home. Once you have done these steps you should increase you retirement savings. If possible, you should be investing in the Roth 401(k) option because it offers the greatest tax savings over the other accounts. You may also want to consider investing outside of your retirement accounts for more flexibility.

What Other Investing Options Do I Have?

In addition to your 401(k), you may want to max out your Roth IRA options. Currently, you are allowed to contribute up to $5500 if you are under the age of 50. This is the current amount for 2016. The amount may be adjusted for inflation in the future. You may also want to invest in other accounts too. Although these accounts do not have the tax benefits of retirement accounts, they do offer more flexibility when it comes to accessing your money. If you plan to retire before retirement age, you may want to have savings that do not have the 59 ½ age limit attached to them. You may also want to consider real estate investing, but only if you are ready to become a landlord and handles those additional expenses.

How Much Should I Be Investing?

The amount you invest really depends on your financial situation. You should be debt free before you become really serious about your investing. You need to contribute steadily to retirement between ten to fifteen percent of your income. After that you may want to set a percentage goal for the amount you want to save. It helps to have clear goals and a solid financial plan in place so that you know what the money will be used for. If you are debt free and contributing a good amount to retirement each year, it is okay to enjoy the things you can get with your money. Just make sure that you continue to live within your means. A financial planner may be able to help you set goals like buying a vacation home or planning to travel so that you can have the motivation to invest on a consistent basis. Take the time to figure out what you want to accomplish with your money.