What are the retirement account contributions for 2019, and how can maxing out your retirement accounts help you long-term?
Saving for retirement is important, and more people are becoming aware of the importance with the growing FIRE movement (Financial Independence, Retire Early). One of the key ingredients to a successful retirement, especially if you plan on retiring early, is maxing out your retirement accounts. If your plan is to retire early, it’s important to note that early withdrawals (money taken out before you are age 59 ½) from the qualified retirement accounts listed below could be subject to a 10% penalty. For this reason, saving and investing in regular brokerage accounts or taxable accounts is also recommended.
Every so often the IRS will announce adjustments to cost of living expenses, which will increase the contribution to retirement accounts and pension plans. 2019 was a year that saw an increase for contribution limits, for the first time since 2013. This increase means you can put more away compared to previous years.
Keeping on top of the limit increases is important for anyone actively trying to max out their retirement accounts, or for those who are doing future planning forecasts prior to retirement. The longer you have before retirement, the more these increases are actually worth because of time and compounding interest. I’ll show you what I mean after we go over the new increases.
Investing is a great tool for building wealth, but there are some financial milestones you should consider before you start investing.
Investing has a stigma for being complicated, or something that is only for people that have a lot of money. While there is a learning curve when you first start investing, it’s important to know that anyone can invest, and you don’t need a huge sum of money to begin.
1. Have an emergency fund.
The money you plan on investing should be money you are comfortable not touching for a long period of time. It is not an extension of your checking or savings account, and ideally shouldn’t be taken out until you’ve hit the goal or time that money was designated for.
So before you invest your money, make sure you have an adequate emergency fund to reduce the need to dip into your investments. An emergency fund should have 3-6 months of living expenses set aside.