By Darius Wood, Fall 2015 Student Intern
Millions of Americans save for their retirement by utilizing retirement accounts like 401(k)’s and Individual Retirement Accounts (IRA). Retirement accounts are advantageous over savings accounts and regular investment accounts because they allow individuals to not only invest money in a particular area but will potentially receive favorable tax treatment by doing so. The exact tax treatment of each plan varies.
Each year the Internal Revenue Service, commonly know as the IRS, announces the contribution limits for each retirement plan. These numbers are adjusted each year based on a formula in the law that takes into account the cost-of-living index.
For 2016 most of the contributions limits remained the same as 2015:
- 401(k), 403(b), most 457 plans, and Thrift Savings Plans stayed at $18,000.
- 401(k) catch-up contribution for employees 50 or older remained at $6,000.
- IRA contribution remained at $5,500, while the catch-up remained $1,000.
- SEP IRA & Solo 401(k) remained at $53,000.
- SIMPLE retirement accounts remained at $12,500, while the catch-up stayed at $3,000.