Category: Retirement Planning

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2023 401k Limits

401k Contribution Limits for 2023

The contribution limit for 401k plans in 2023 has increased by $2,000 from the previous year. The new contribution limit for employees who are under 50 years old is $22,500. This means that employees can contribute up to $22,500 of their pre-tax income to their 401k plan in 2023.

For employees who are 50 years old or older, there is an additional catch-up contribution limit of $7,500. This means that employees who are 50 or older can contribute up to $30,000 in 2023. This catch-up contribution is designed to help older workers catch up on their retirement savings if they haven’t been able to save as much as they would like in previous years.

It’s important to note that these limits apply to the total contributions that an employee can make to their 401k plan. This includes any contributions made by the employee, as well as any contributions made by the employer on the employee’s behalf.

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2021 401k Limits

It’s November 2020 and we are in the middle of a once in a century global pandemic. Long lines at grocery stores, toilet paper is out of stock and we spend endless hours working from home and juggling kid’s Zoom schedules. Some days are easier than others, and it’s easy to get swept up in the hysteria of the world ending, but one thing is for sure – we will get through this and we will return to normal; at least a new normal.

While there are certain things that will never be the same – there is one constant in our lives – the need to save for retirement. So, let’s take a look at 401k limits for the new year:

2021 IRS 401k limits

  • $19,500 – Deferral limit. No change from 2020.
  • $6,500 – Catch-up contributions for those age 50 and over. Up $500 from 2020.
  • $58,000 ($64,500 including catch-up contributions) – Overall limit on contributions. Up $1,000 from prior year, this is the maximum that you and your employer can contribute per year. For example, let’s say you are 35 yrs old, contribute the maximum $19,500 and your employer match is $5,500. This means you can contribute an additional $33,000 per year ($58,000 – $19,500 – $5,500 = $33,000).

For additional resources, visit the IRS 401k webpage https://www.irs.gov/retirement-plans/401k-plans

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IRA | Roth IRA

An IRA is an account set up at a financial institution (think Fidelity or Chase) that allows an individual to save for retirement with tax-free growth or on a tax-deferred basis. The 3 main types of IRAs each have different advantages:


Traditional IRA – You make contributions generally deductible on your tax return, and any earnings grow tax-deferred until you withdraw them in retirement. Best if you expect to be in a lower tax bracket when you retire.

Roth IRA – You make contributions with money you’ve already paid taxes on (after-tax), and your money may potentially grow tax-free, with tax-free withdrawals in retirement, provided that certain conditions are met.

Rollover IRA – You contribute money “rolled over” from a qualified retirement plan into this traditional IRA. Rollovers involve moving eligible assets from an employer-sponsored plan, such as a 401(k) into an IRA.

Why invest in an IRA?

As mentioned in my 401(k) section, IRAs are a great option if you don’t have access to a 401(k) or if your employer does not offer a match and you expect to contribute less than $6,000 per year.

Additionally, if you max your 401(k) and want to accumulate more savings, you can contribute to both a 401(k) and an IRA. However, if you max your 401(k) already, you are likely in a higher tax bracket that may preclude you from either getting the tax deduction of a traditional IRA or ability to contribute to a Roth. In these cases, do your homework. There are still ways to get around this with strategies such as a “backdoor IRA.” More to come on this topic…

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HSAs – The Trifecta Of Retirement Investing

HSAs let you save tax-free for medical needs. If you have a high-deductible health insurance plan (over $1,350 for individuals or $2,700 for families), you’re eligible. They are similar to FSAs, but FSAs generally have more restrictions such as “use it or lose it” rules and they don’t offer a way to invest your contributions. I would argue HSAs should be your first choice for investing for retirement, even more so than 401ks and IRAs. Here is why:

Triple tax break

  1. Contributions are tax deferred and you can invest the funds
  2. Earnings are not taxed
  3. Withdrawals used for qualified medical expenses are not taxed either.

With a Traditional 401k or IRA, you get the tax deferral benefit in #1 above, but pay tax later, so you don’t get the benefits of #2 and #3. With a Roth 401(k) or IRA, you get the benefits of #2 and #3, but not #1. With a HSA you get the benefits of all 3. A triple tax break!

2019 Contribution Limits

You can contribute up to $3,500 to an HSA if you have single coverage or up to $7,000 for family coverage in 2019, which is slightly more than the 2018 limits. If you’re 55 or older anytime in 2019, you’ll continue to be able to contribute an extra $1,000

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401k Plans

Keep it simple. If your employer offers a 401k Plan, even if there is not a company match, you should join the plan and contribute. Don’t worry about IRAs, stocks or mutual funds. Join your company 401k Plan now!

Contribution Limits

Start with 5% of your salary. If you can afford more, do it. If you can’t afford 5%, start with $50 or $100 per month. Whatever you can. This year the IRS has increased the maximum employee 401(k) contribution limit to $19,000 per year. The maximum contribution for 2018 was $18,500.Additional contributions can be made if you are age 50 or older. For 2019, that number remains at $6,000, which is also the same as the catch-up contributions in 2018 and 2017.

Traditional vs Roth

The biggest difference between a Roth and a traditional IRA is how and when you get a tax break: The tax advantage of a traditional IRA is that your contributions are tax-deductible in the year are made. The tax advantage of a Roth IRA is that your withdrawals in retirement are not taxed.

Tough call. If you are just starting your career, go with a Roth. Otherwise, select a Traditional or mix it up.

Fund Choices

There are several choices ranging from small cap to large cap, domestic vs international and low fee options.

Unless you are plan to monitor your investments daily, your best option is a target fund. I personally invest in the Vanguard target funds through my employer 401k Plan. What is a target fund? A target date fund is designed to provide a simple investment solution through a portfolio whose asset allocation mix becomes more conservative as the target date approaches. As an example, if you pick a Target 2045 fund, the portfolio will be more heavily weighted towards stocks, gradually allocating to more conservative investments (e.g. bonds) are your target date approaches.