Saving for Retirement 101: Traditional 401(k)

 In Elder Law, Estate Planning, Tax Law

What is a 401(k) plan?

A 401(k) is an employee-sponsored retirement savings account.

With a 401(k), individuals invest pretax funds directly from their paychecks into an employer-sponsored retirement account. Because 401(k)s hold pre-taxed income, individuals pay taxes upon withdrawal in retirement.

For 2022, 401(k) contribution limits for individuals aged under 50 were $20,500, and $27,000 for individuals aged over 50.

Individual limits are cumulative across 401(k) plans. For example, suppose you are an individual under 50 and leave your current job for a new one during the 2022 calendar year. In that case, your individual 401(k) contributions are limited to $20,500 across both plans at both positions. However, any match or non-match contributions made by your employer do not count towards your individual contribution limit.

401(k)s also allow for individuals to make catch-up contributions. A catch-up contribution is a retirement savings contribution that enables individuals over 50 to make additional contributions to their 401(k). The 2022 catch-up contribution limit was $6,500. Those who make catch-up contributions will have a total annual contribution exceeding the standard contribution limit.

Estate Planning is an important component of financial planning. At Bach, Jacobs & Byrne, P.A., we address tax issues and avoidance as part of estate planning. If you live in Sarasota, Manatee, or Charlotte County, contact Bach, Jacobs and Byrne, P.A. at (941) 906-1231 to evaluate whether your estate plan is tax efficient.

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