Retirement Accounts
Many employers offer retirement savings plans, such as 401(k)s, SIMPLE IRAs, 403(b)s, and Thrift Savings Plans. These employer-sponsored plans are easy to contribute to, allowing individuals to set a percentage or dollar amount to be automatically deducted from their paycheck each period. If contributing pre-tax (i.e., the funds are not taxed going in) this is one of the first places to reduce taxable income while putting away money that will grow tax deferred and will eventually create a source of income in retirement.
- These plans are tax-advantaged; contributions to traditional 401(k)s or other qualified retirement plans are made with pre-tax dollars, reducing your taxable income.
- Provide higher contribution limits compared to traditional IRAs.
- Contribution limits (IRS.gov)
- The 2026 employee elective deferral limit is expected to be $24,500
- For employees age 50 or older, the catch-up contribution limit is projected to increase to $8,000 in 2026.
- For those in the age 60–63 “super catch-up” bracket, the catch-up limit may be higher
- The total contribution limit (employee + employer) is projected to rise to about $72,000 (without catch-up) in 2026
- Contributing to a pre-tax employer sponsored plan means taxes will be owed in the future. Many employer sponsored plans such as 401(k)s and SIMPLE IRA plans now offer a Roth component. Roth contributions are made with after-tax dollars, meaning the contributions do not reduce your taxable income now, but are tax-free in the future. If you feel you will be in a higher tax bracket in the future, allocating a portion or all of your contributions to the Roth may be beneficial.
- Most plans offer several times in the year when you can update your contribution amounts.
- Many employers match employee contributions up to a certain amount – not taking full advantage of the employer match is like leaving “free money on the table.”
- Ideally contributions between employer matches and employer contributions should equate to 15%.