Now that we’ve covered the types of Mutual Funds, we have to look at the possible limits in all the areas in which you can invest. The basic place is an Investment Account where there is no limit as to how much you can invest and there’s no tax advantage, meaning all profits and losses go directly to your tax return even if you reinvest the profits. If you do reinvest profits it increases the ‘basis’ or cost of your investment which you will need when you start taking money out and have to show the difference as capital gains on your tax returns. This is why you must keep the paperwork related to these funds until you finally take out all the money.
IRA limits for Traditional and Roth – For 2019, your total contributions to all of your traditional and Roth IRAs cannot be more than: $6,000 ($7,000 if you’re age 50 or older), or your taxable wages for the year, if your compensation was less than this dollar limit. If you or your spouse is covered by a pension at work then the tax deduction of a traditional IRA will be limited depending on income levels of either of you. Again there is no tax deduction for Roths.
Roth IRA deposits are limited by your income. For single tax filers, if you earn $122,000 up to $137,000 the limit you can deposit starts to drop and goes to zero at $137,000. For married filers the limit starts at $193,000 and goes to zero at $203,000.
401k Limit – $19,000 Simple 401k – $13,000. For people 50 and older you can add ‘catch up’ contributions of $6,000 for 401k’s and $3,000 for Simple 401k’s in addition to the $19,000 or $13,000.
403b Limit – $19,000. For people 50 and older you can add ‘catch up’ contributions of $6,000.
457b Limit – $19,000. There are special rules for ‘catch up’ contributions, see your benefits office about what they allow.
All of these 400 series plans are tax deferred and most have employer contributions also. Generally you should try and get to the point of maximum matching funds since it’s like getting a raise and it will help grow your pension faster. If you max out on any of these plans and can afford it you can open IRAs for you and a spouse and discuss with your Accountant or Financial Advisor which type of IRA fits your situation.
In some situations, the 401k mutual fund choices are limited and possibly not that good as investments for growth of your pension. Depending on how much you can afford to invest you may want to consider avoiding a 401k with no match and opening an IRA where you can choose any Mutual Funds you like up to the appropriate limits for you and your spouse. You can set up monthly automatic transfers to these IRAs and raise the amount as your income increases and the annual limit does also, right now it would be $500/month for those under 50. In the 400 series pension plans its recommended that as you get raises you increase your deduction percentage, usually easily done online.
Please meet with a licensed financial advisor to determine the best course of action for you as an individual.