The IRS Increases 2019 COLA Limits: The Potential Impact of $500

Twenty years from now you will be more disappointed by the things that you didn’t do than by the ones you did do.”  – H. Jackson Brown Jr

A couple of weeks ago, caravans of kids across America dressed as their favorite characters and canvassed the streets with a singular declaration. After a few hours of labor, they returned home anxious to empty their bags and relish in their spoils. However, they may have found themselves disappointed and left wondering, “Should I have started sooner in order to get more candy?”, “Should I have gone down a few more streets in search of the full-size candy bar?” “What am I going to do with a pencil?” How many of us feel the same way when it comes to planning for retirement? Once a year, we fully commit for a few hours and hope that when it’s time to look in our retirement savings bag, it will be more of a treat.

On November 1st the IRS released their 2019 IRS Retirement Plan Contribution Limits [2] for retirement plans, pensions, and IRAs which included a $500 increase in the amount someone can contribute to their 401(k) in 2019 (this is known as the 402g limit). Individuals can now contribute $19,000 annually into their retirement plan; $25,000 annually if age 50 or older. Naturally, you may be wondering what impact an extra $500 could possibly have on your retirement savings?  Well, assuming a 40-year time horizon and a market return of 6%, an extra $500 a year could amount to $80,000 in additional retirement income[1]. That’s right, for just about $10 per week, you could save a significant amount of additional funds for retirement. You could turn two Starbucks a week into an extra year or more of income for retirement.

Taking advantage of opportunities to save a little more today, can make a big difference in retirement tomorrow.

 

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1 For illustrative purposes only.  The above represents a strictly hypothetical scenario and should neither be viewed as a guarantee nor construed as investment advice. Actual results could differ materially.

2 Source: IRS Notice 2018-83. https://www.irs.gov/retirement-plans/cola-increases-for-dollar-limitations-on-benefits-and-contributions