This Common Retirement Plan Could Help High Earners Save More Than a Traditional 401(k) — Here’s How
Written by
Adam Palasciano
Edited by
T. Woods
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Saving for retirement is of paramount importance. Fortunately, high earners and all 401(k) savers have new maximum thresholds for 2024, according to CNBC.
Employees who participate in 401(k) plans can now contribute up to $23,000 in pretax or post-tax Roth contributions in 2024, up from $22,500 in 2023.
That said, Fidelity Investments outlines that while the 401(k) contribution limit for 2024 is $23,000 for employee contributions, there is a $69,000 limit for the combined employee and employer contributions. This combined limit allows employees to save even more. Additionally, this figure increases to as much as $76,500 when including the $7,500 catch-up contribution for those aged 50 and older.
It’s worth noting that your salary must be beyond the $69,000 threshold in order to qualify.
Roth Retirement Plan Might Help Save More Than A 401(K)
For some, a normal 401(k) may make more sense since your retirement contributions will be tax-deferred until later in life. Assuming that you’re earning less money once you enter retirement, you’ll owe less money on your total contributions.
Although participating in a Roth retirement plan — in which all of your contributions now are with post-tax income — can be more beneficial if you want to take advantage of tax-free investment growth. If you project that your income will be higher once you retire, then a Roth retirement plan would be most beneficial. It’s reported that when deferring 6% to traditional pretax retirement savings or 6% to post-tax Roth money, the Roth is actually worth 7% or 8% in the long run.
Tips To Help You Save More For Retirement
Here are some tips from “retirement super savers” — those who contribute the maximum limit to their 401(k) plans, to help you save even more for retirement:
Budget Carefully
If you’re looking to increase or max out your retirement account contributions in 2024, take a look at your monthly expenses and see where you can cut back or eliminate charges. Getting rid of those extra streaming services you don’t really use anymore or not buying coffee out each day can leave you with extra cash to contribute towards your retirement account each month.
Set Automatic Increases
Every time you get a promotion, a raise or even simply an annual cost of living adjustment (COLA) of 3-5%, plan to increase the percentage contribution to your retirement account by about 1-2% ahead of your pay increase. This way, you won’t feel the decrease in your take-home pay once your pay increase kicks in, and you’ll already be contributing more to your retirement.
Start Contributing Even A Small Amount
If you haven’t started saving money in a retirement account, it’s never too late to start. Start with a small monthly contribution, say $25-50. Even a small amount invested now can compound significantly over decades. You can increase your monthly contributions whenever your budget allows, which will lead to more compounded growth.
Always Contribute Enough To Get The Employer Match
Many employers provide a 4-6% contribution match to your retirement account as a benefit. If your employer participates in matching, be sure to contribute at least the match percentage. If the employer match is 5% and you also contribute 5% of your pay, you’ll see a total 10% contribution added to your retirement account each month. Don’t miss out on what are essentially free additional funds toward your retirement.
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