Happy New Year! As we welcome in 2018, we might want to set a couple of financial resolutions so that we have plenty of time to realize our goals. Typically, people have similar resolutions in mind. Common ones are increasing your 401(k), preparing a spending plan, reviewing the new tax rules, increasing your emergency fund, updating (or creating) estate documents and revisiting life insurance. Some of these we’ll talk about in future blogs, but let’s hit one that I emphasize with clients.
In my mind, there’s one financial resolution that stands out for many of us. It’s your 401(k) plan. In 2018, we are permitted to contribute up to $18,500 to our 401(k). And there’s an additional $6,000 contribution permitted for those of us who are 50 or older. Why does your 401(k) deserve special attention? First of all, maximizing your retirement savings is a great way to ensure a nice nest egg for your golden years. For example, saving $10,000 annually starting at age 40 and assuming a 4.5% growth rate over the next 25 years would add about $465,000 to your retirement assets. Second, these contributions lower your taxable income. That’s right, the recently passed Tax Cuts & Jobs Act still permits funding 401(k) plans with pre-tax money. So, if your income is $75,000 and you contribute $10,000, your taxes are calculated on $65,000. At this income level, your tax rate would be 22%. So, the $10,000 reduction in your income would save you $2,200! And last, but not least, there are the matching contributions from your employer. Many employers match your contributions (or at least some percentage of your contributions) up to some specified limit. If your employer has a 100% match up to say $5,000, the match to your 401(k) contribution would be $5,000. That’s a 50% growth rate! So, why not sign up for or increase your contributions to capitalize on this great deal!
We’d be happy to go over any of your 2018 financial resolutions or talk about any other financial questions you may have in a no-charge, no-obligation initial meeting. Just visit our website or give us a call at 970.419.8212 to learn more.
This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products. Please consult your tax or investment advisor for specific advice.