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We all want to max out our 401(k) contributions — and a select handful of taxpayers are doing just that.
Some 4.67 million taxpayers managed to squirrel away the maximum $18,000 in employee contributions to their 401(k) in 2016, according to data from the IRS.
Those who were age 50 and over were able to put away an additional $6,000 in catch-up contributions.
Older workers were among the most ambitious savers. In all, the over-60 crowd accounted for more than 1 million taxpayers who were able to save the maximum to their retirement plans that year.
Men made up the lion’s share of big savers. About 3 million of the taxpayers identified as male.
“This year, the maximum contribution is $19,000, plus $6,000 if you’re 50 and over — it’s a lot to defer and still have money left over for living expenses,” said Michael Landsberg, CPA and member of the American Institute of CPAs’ personal financial planning executive committee
A Hispanic woman of the Millennial Generation is looking at her financial statement while eating lunch at a local sushi restaurant. She is using her bank’s app to balance her monthly budget. Image taken in Utah, USA.
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For many workers, saving for retirement is just another item on a massive list of priorities.
Huge contributions to your 401(k) — even if they help reduce taxable income — will leave you with less take-home pay.
“You don’t want to make decisions that are detrimental,” Landsberg said. “You’re paying off loans, you have credit card debt accruing – you don’t want to have too low of a take-home check.”
Striking a balance between the two can be difficult for employees, particularly when retirement plan service providers recommend that workers save at least 15% of their pretax income annually.
While this number sounds intimidating, it includes employer matches and profit sharing.
Be sure to save at least enough to get the match; it’s essentially free money.
To that end, while workers contributed a median 6% of their salary toward their 401(k) plans in 2018, the median contribution rate jumped to 9.8% when accounting for employer matches, Vanguard found.