Save more this year with 2018 contribution limit increases
The IRS recently increased contribution limits to a number of retirement and investing accounts, which means you can contribute more starting January 1.
Here’s a snapshot of the changes and how you can take advantage of them.
Contribution limit increases in 2018
|Account Type||Previous Limit||2018 Limit||How much more you can save|
401ks and 403bs
|$18,000||$18,500*||$500 per year|
|SEP IRAs and Solo 401ks||$54,000||$55,000||$1,000 per year|
HSAs* (Health savings accounts)
*if you have an individual HDHPl)
|$3,400||$3,450||$50 per year|
HSAs* (Health savings accounts)
*if you have a family HDHP
|$6,750||$6,900||$150 per year|
|FSAs (flexible spending accounts)||$2,600||$2,650||$50 per year|
*General deferral limit before applicable age 50+ catch-up amount up to $6,000.
Keep in mind that the contribution limit for traditional and ROTH IRAs remains the same for 2018 at $5,500, with an age 50+ catch-up amount of $1,000.
Tips for saving with retirement and investing accounts
Start with accounts like a 401k or 403b which allow you to contribute before tax, meaning every dollar you contribute can reduce your taxable income. That can help you save more with less impact to your take home pay.
Another reason to use these accounts? Often, your employer will provide a matching contribution. If you contribute 3 percent to your 401k, for example, your employer who offers a match may also contribute 3 percent. That’s almost like a raise, or free money!
Two other useful accounts you can use to help reach your financial goals are health savings accounts (HSAs) and flexible spending accounts (FSAs).
- Health Savings Accounts (HSAs): Consider treating your HSA like a retirement account. Continue to contribute money to the account and use your day-to-day cash flow for medical expenses today. If you can avoid dipping into your HSA and take it into retirement with you, you could have a tax-deferred nest egg specifically for qualified healthcare expenses in retirement (which will likely be your biggest expense in your later years).
- Flexible Spending Accounts (FSAs): If you have a health plan through your employer, you can open an FSA. Like an HSA, you don’t pay taxes on the money you contribute or use, as long as you use the funds on qualified expenses. The catch with FSAs? The money in your account doesn’t roll over. It’s “use it or lose it,” meaning your employer gets the leftover funds at the end of the year if you haven’t used them.
The biggest immediate benefit you’ll see if you choose to take advantage of these contribution increases and save more money? Savings in your taxes, too. All of these accounts are tax-deferred, meaning it can help lower your adjusted gross income, which helps you pay less in taxes.
The more you save now, the easier it will be to reach your biggest financial goals—including saving the money you need to retire when you want.
Contributions and any earnings are tax-deferred and will be taxed as ordinary income when distributed, and are subject to any applicable tax penalties.
Neither Voya® nor its affiliated companies or representatives provide tax or legal advice. Please consult a tax adviser or attorney before making a tax-related investment/insurance decision.