One of the financial moves I support is contributing to a retirement account such as the 401K. Especially if your employer offers a matching contribution, that’s free money to you. I’ve contributed to my retirement account since my first job and contributed the maximum amount. In 2021, the maximum contribution was $19,500. In 2022, the IRS set the 401K contribution limits to $20,500, an increase of $1,000. If you’re of the age 50 and over, you can add $6,500 as catch-up contribution.
What does a $1,000 increase mean? For starters, you can contribute an extra $1,000 towards your retirement. If invested right, it will grow and by the time you retire, hopefully it will have compounded multiple times. The earlier you invest, the more time your money has to grow.
Second, it’s an extra $1,000 that is pre-taxed and lowers your adjust gross income. If you are trying to lower your taxable income, this will help a little. This could help especially if you’re right on the border of a tax bracket and you’re trying to stay at the lower tax bracket.
Contributing the maximum amount isn’t right for everyone. Depending on what your financial status is, what your financial goals are, or just your preference, this may not be of interest to you. 401K contributions over the years has given me a sense of relief with one less thing to worry in retirement. Starting early and allowing your contributions to grow over time is one step towards financial independence. With the contribution limits increased by $1,000, it makes it even quicker for your retirement account to grow. If you are interested in following my journey, email subscribe to get alerts of latest posts or follow me on Facebook, Instagram, and Pinterest.
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