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IRS announces 401(k) limit increases to $20,500
- sairahul82 5y agoApproximately 5% increase and is inline with inflation.
- mensetmanusman 5y agoSurprised these types of dollar amounts aren’t pegged to inflation, although if everything were pegged to inflation, what would things cost?
- jonas21 5y agoThey are. See section (g)(4) of: https://www.law.cornell.edu/uscode/text/26/402 https://www.law.cornell.edu/uscode/text/26/402 Everything, including the rounding to a multiple of $500, is specified in the law.
- ekianjo 5y agoyou mean the fake inflation measured by some artificial basket not representative of anything?
- mym1990 5y agoCan’t tell if you’re implying that there is no inflation or if inflation is much higher than 5%?
- ac29 5y agoUsually these folks are of the type who seem to think "well, my rent went up by 10%, therefore inflation cant really be 5%"
- sbelskie 5y agoDo you have a better one you use instead to gauge inflation?
- nzmsv 5y agoEven if they don't, that's not a valid argument. A metric can be misleading even in the absence of better ones. The parent comment does not deserve the downvotes. For a balanced take: https://www.investopedia.com/articles/07/consumerpriceindex.asp https://www.investopedia.com/articles/07/consumerpriceindex....
- gruez 5y agoYou're free to come up with your own index with your own basket. The BLS publishes inflation indices at a very granular level, so you don't even need to reverse engineer their data. For maximum shock factor, may I suggest a basket overweighted towards medical care, college tuition, and healthcare[1]? [1] https://www.aei.org/wp-content/uploads/2020/01/cpi2020-875x1024.png https://www.aei.org/wp-content/uploads/2020/01/cpi2020-875x1...
- curryst 5y agoI wondered why you had medical care and healthcare, they seemed redundant, but good on BLS for separating hospital costs and medical costs. That truly is granular.
- cnst 5y agoWhat about the total 401k limit per employer? Used to be 58k in 2021.
- dmoy 5y ago$61,000 for 2022
- mindvirus 5y agoI've long been curious, are there places that do a 200% match to hit this? That would be super appealing to me as a prospective employee.
- cnst 5y agoEvery company has a different way of matching 401k: https://www.levels.fyi/benefits/401k/ https://www.levels.fyi/benefits/401k/ It's actually more complicated than it looks, because the base salaries and total compensation may also differ substantially between the companies, so you can't really compare 401k alone. Usually the way to hit the 58k limit is through the Megabackdoor: https://www.levels.fyi/benefits/Mega-Backdoor-Roth-IRA/ https://www.levels.fyi/benefits/Mega-Backdoor-Roth-IRA/
- missedthecue 5y agoIt's not exactly in a company's best interest to have all of their employees retiring in their mid thirties.
- lotsofpulp 5y agoThe only reason they would be paying enough for mega backdoor Roths is if they were betting they could not find employees they want that would take less.
- gowld 5y agowhich is why they should want to support employees saving for age 60+ retirement so they don't feel rich at 30.
- AYBABTME 5y agoThis news prompted me to do some quick math earlier today. My question was: > What sort of retirement can you get from a 401k-only strategy? So I tried and played to see how much of a retirement, in term of yearly retirement income in today's dollars, one would get if they were able to consistently max out their 401K, every year, starting today from 20yo to 55yo in 35 years, with a 50% match from their employer. Math may be wrong, but it seems like the total value of that person's 401k, at 55yo, would be about 6M$. If we turn this into how much of a yearly income this feels in today's purchase power, 6M$ would be ~3M$ in today's value. At a 4% withdrawal rate, that's a 120,000$/y retirement income (in today's value). Assuming: - a ~500$/y increase in 401k limit - 7% YoY growth rate of investment - 2% inflation rate - 4% withdrawal rate. - 50% employer match
- 88913527 5y agoAssuming you max 401(k) (no match), IRA, and HSA ($20,500 + $5,500 + $3,650), using same interest rate and investment window: $4.1M. If you have a spouse as fortunate as you: $8.2M. If we add in the employer match: $5.5M and $11M.
- turndown 5y agoWhy is your age range so weird? No one I've ever met had a 401k at 20, let alone maxing it out, and few actually retire at 55.
- kyawzazaw 5y ago23/24 is a more reasonable starting age
- AYBABTME 5y agoI was just going for the upper bound, assuming someone who lucks out right out of college and retires on a 401k-only strategy at exactly the 55. Knowing the upper bound is interesting to me because most people in the US don't max out their 401k and are probably not getting employer match, so their retirement story is probably not going to be anywhere near that. Meanwhile in tech (in the US), people's out of college starting salary and internships is often above this. That's a helpful comparison point - say if you want to check your privilege. Or if you're a tech worker making >120k/y and you've been saving for retirement using only your 401k, well, that'd tell you it's probably not going to be enough to finance your lifestyle expectations.
- 300bps 5y agoThe 401k limit increases $1k and the Social Security tax limit increases $5k to $147,000. In 2000 the Social Security tax limit was $76,200 so that is a 93% increase. Inflation increased only 59% in that time.
- nemo44x 5y agoI think it’s because upper middle class salaries have increased a lot and to keep the system solvent the limit has to increase. Especially on the coasts people making 150k plus is not too unusual.
- curryst 5y agoI think it's related to wealth inequality. Social Security only taxes the first ~$150k you make in a year. If a million dollars is redirected from the poor to the rich, we lose Social Security income. In theory, that decreases the Social Security we have to pay out, but in reality, that would mean letting those people die when they get old, so we'll pay for it one way or another. Plus, you know, people not having kids. Social Security isn't pre-funded, so it kind of depends on the labor force growing indefinitely. That was a terrible idea, but I can't see any way to fix it now.
- drtz 5y agoSocial Security is on its way to insolvency thanks to slowing population growth and increases in longevity. It has to increase faster than inflation to keep up.
- dlp211 5y ago$4200 not $5k, and if Congress won't fix SS, the trust will try it's damnedest.
- missedthecue 5y agoI'm irritated that the Roth IRA limit is staying at $6000! That doesn't make immediate sense to me. At my income, hitting the Roth IRA maximum is much more attainable than the 401(k) maximum.
- tantony 5y agoYou could use a Roth 401k to supplement that. And then rollover that into a Roth IRA if/when you change jobs.
- deleted 5y ago[deleted]
- 300bps 5y agoLook up a "Backdoor Roth". It is specifically designed for people in this circumstance. Essentially you do a non-deductible traditional IRA contribution and then immediately convert it to a Roth IRA. There are rules regarding this so important to follow them but it's actually fairly easy to do.
- sbelskie 5y agoThis is potentially being eliminated (under some circumstances) by the current reconciliation bill.
- mmmpop 5y agoCan't let the middle-class get too uppity with things like financial security, now can we?
- whimsicalism 5y agoPuh-lease. Megabackdoor Roth utilizers are $200k+/yr earners.
- 5y ago
- joelbondurant 5y ago$20k of Bitcoin is better.
- RickJWagner 5y agoThis is awesome. Always max out the 401k. Especially if you get an employer match. Follow the simple steps outlined by Dave Ramsey / John Bogle / Tony Robbins / etc ad naseum. Accumulating wealth is easy and fairly certain if a few simple rules are followed.
- mNovak 5y agoFunny how this is blowing up my timeline right now.. isn't this just the annual inflation adjustment? But as an annual reminder.. max out your 401k! Also if you can find a way to be even partially self-employed--max out the (much larger) employer contribution as well.