401(k) Contribution Limits Have Increased For 2018

The start of a new year brings with it many things and I’m not just talking about a bunch of resolutions you will break before February first rolls around. I’m talking about important stuff - stuff that will alter your paycheck.

Your Paycheck Is Going To Change

New tax rates go into effect at the first of the year, so you’ll likely notice the amount you have withheld in taxes changes. You could end up with a slightly bigger or smaller paycheck in 2018.

One change in 2018 that people may overlook is an increase in the contribution limit to 401(k) and 403(b) plans. The maximum amount you can contribute to these plans has increased by $500. The new maximum is $18,500. Few people actually reach that maximum, but if you were one of those people in 2017, you can now add a bit more to your savings in 2018.

As a side note, this is the first time this limit has increased since 2015.

If you are 50 years old or older in 2018, the catch-up contribution limit remains unchanged at $6,000. So if you will turn 50 years old in 2018, your maximum 401(k) contribution is $24,500.

Others Changes Are Also Happening

There are also changes to the amounts you can contribute to traditional IRAs. The phase-out income limits for who can contribute to Roth IRAs also changed. See this page at the IRS website for a list of all the retirement savings-related changes for 2018.

Make Changes, But Do So Carefully

If you are one of the lucky ones that is able to max out their 401(k) contributions, be sure to increase your contributions in January. But when doing so, please keep in mind that if you increase your contribution too much, you may end up missing out on some company matching. See my previous article here about this.