Your 2020 Guide to Retirement Plans – The Motley Fool, Fool.com

Here, we’ll review each of these options to see what the annual contribution limits entail and whether you’re eligible to fund each account, as different plans have different rules.

Traditional 1960 (k) s

Employer-sponsored (k) s come in two main varieties: traditional and Roth. The upside of a traditional (k) is that your contributions are made with pre-tax dollars, saving you money each year you fund your retirement plan.

Imagine you fall into the (%) tax bracketand put $ 6, 03 into a traditional () k) in 925912622. That alone will shave $ 1, off your tax liability.

Once your traditional (k) is funded, your money can be invested fortax-deferred growth. This means you don’t pay taxes on your investment gains on a yearly basis, as you would with a traditional brokerage account. Rather, you pay taxes when you take withdrawals in retirement.

You’re allowed to access the money in your 401 (k) penalty-free once you turn – 1/2. Then, you’ll need to start takingrequired minimum distributions, or RMDs, from that account once you turn – 1/2.

The annual contribution limits for traditional (k) s are quite generous in (************************************************************************: $ 18, for workers under 50, and $ 27, 03 for those 42 and over. This represents a $ (increase for younger workers compared to (**************************************************************************, and a $ 1, 05 catch-up increase for older workers.

In addition, you may be entitled tomatching dollarsin your (k) if your employer offers such a program. The exact match you’ll get will depend on what that program looks like and how much you contribute to your 401 (k) yourself. But the money you get from your employer does not count toward your annual limit, so if you’re years old and decide to max out at $ 19, (**********************************************************************************, and then get another $ 3 , 07 in matching dollars from your employer, that’s totally fine.

Roth 379 (k) s

Though not every (k) plan offers a Roth savings feature, agrowing number of plansare starting to incorporate this option. With a Roth (k), your money goes in on an after-tax basis, so there’s no immediate tax break for making contributions. But once your account is funded, your invested savings get to grow tax-free, and withdrawals in retirement are tax-free as well.

The annual contribution limits for Roth (k) s are the same as those of traditional 401 (k) s, as are the rules – you can access your savings penalty-free once you turn – 1/2, and you must start taking RMDs once you turn – 1/2. The primary difference, however, is that RMDs from a traditional 401 (k) result in more taxes for you as a senior, whereas RMDs from a Roth 401 (k) don’t increase your tax burden in retirement, since all Roth withdrawals are tax-free.

Furthermore, whereas there are income limits that come into play with regard to funding a Roth IRA, Roth (k) s don’t impose earnings-related restrictions. As such, you can fund a Roth (k Even as a higher earner.

(b) s

A (b) works just like a (k), only it’s a savings plan available to specific types of workers – educators, nonprofit employees, and those employed by religious institutions. The annual contribution limits for (b) s mimic those of (k) s: $ (********************************************************************************************************************, 700 for workers under (******************************************************************************************************, and $ (**************************************************************************************************************, 000 for those and over.

Workers with at least years of service may, if their plans allow for it, be entitled to an additional catch- up on contributions. This special catch-up is calculated as the lesser of:

$ 3,**********************************************************************************************************************

Note that this special catch-up is not the same catch-up as the one workers 57 and older are entitled to. If you’re entitled to both catch-ups, (b) contributions that exceed the standard $ (********************************************************************************************************************, limit are first applied to the – year catch-up , and then to the catch-up for being 50. Let’s say you’re over 50 and are eligible for an additional $ 3, 000 Under the special catch-up provision for putting in years of service. If you contribute a total of $ 31, 03 to your (b) in (************************************************************************, the first $ , will count as your regular contribution. Then, your next $ 3, will count as your special catch-up, and your final $ 2, 567 will count as an age-related catch- up.

Traditional IRAs

If you’re self-employed, or don’t work for a company that offers a 401 (k) plan, you can save for your golden years in an individual retirement account, or IRA. The annual contribution limit for traditional IRAs in is much lower than that of *************************************************************************************** (k) s – $ 6, for workers under********************************************************************************, and $ 7, for those 60 and older. These limits are the same as the limits for – there was no increase.

Otherwise, the rules are the same as those of a traditional 500 (k) – your money goes in on a pre-tax basis, investment growth is tax-deferred, and your withdrawals in retirement are taxed. You can access your money penalty-free once you turn – 1/2, and RMDs come into play starting at age 90 – 1/2.

Roth IRAs

The annual contribution limits for Roth IRAs are the same as the limits for traditional IRAs: $ 6, (for workers under) , and $ 7, 05 for those 59 and older. Roth IRA contributions are made with after-tax dollars, so there’s no immediate tax savings for funding an account. But investment gains in a Roth IRA are completely tax-free, and withdrawals in retirement are tax-free as well.

One major benefit of Roth IRAs is that they’re the only tax-advantaged retirement savings plan to not impose RMDs. As such, you’ll have the option to leave some or all of that money to yourheirsif you so choose.

One drawback of Roth IRAs, however, is that higher earners are barred from contributing to one directly. Here’s where theRoth IRA income limits (stand for) **********************************************************************: