Below are the IRS updates for 2017, which are similar to 2016 due to low inflation. Read on for special opportunities to save more…
401(k), 403(b), 457 Plan deferral Limit: 2016: $18,000, 2017: $18,000
“Catch-up” Contribution >age 50: 2016: $6,000, 2017: $6,000
Defined Contribution Plan Total Dollar Limit: 2016: $53,000, 2017: $54,000
Highly Compensated Employee definition: 2016: $120,000, 2017: $120,000
Click here for full IRS announcement of 2017 limits
Some lower-income folks may not need to save up to the limits to meet their retirement goals, but may need to save up to the limits if under-saved in the past. Unfortunately, 29% of those over age 55 have $0 retirement savings (excluding Social Security), while the average for those between ages 55-65 have $104,000**.
For higher-earners, it is often critical to save the full allowable amount. For example, only 34% earning over $100,000 save to the limits*, and Social Security would currently replace less than 25% of the projected retirement income need for those earning more than $120,000, making independent savings essential to cover the other 75%. If you are a “highly-compensated employee” (HCE) with earnings over $120,000, as defined by the IRS, you may have a savings limit lower than the IRS limit in years if your company’s overall participation rate is low and fails participation tests. So, be sure to save as much as you can in years when your company doesn’t fail participation tests, to help offset years where you are forced to save a lower amount. If you are over age 50, HCE’s get some special relief… the catch-up provisions that allow additional $6,000 per year are not subject to the HCE restrictions, so even if your regular contributions are limited, you can still contribute the full $6,000 catch-up amount.
Also, certain small business owners can take advantage of higher plan limits.
Remember… Aim > Save > Invest. Use WealthStep’s tools to help you determine your retirement needs and how much to save now.
*Vanguard 2015 Vanguard study of 4.1 million people.
** GAO study, 2015.