Analysis of maxing out 401k and IRA contributions for 2019.
Have you ever wondered what it would look like to max out your 401k and/or IRA contributions every month? After scaring myself that I wasn’t taking full advantage of my max retirement savings potential I did a quick analysis of what a maxed out monthly contribution would look like.
The maximum annual contributions listed above were pulled directly out of the IRS website. The table assumes you are under the age of 50 and not eligible for additional catch-up contributions.
As you can see there is $25, 000 in tax deferred savings that can be used to shelter and grow your nest egg for retirement annually. That breaks down to $2,083.33 a month or if you get paid every other week $1,041.67 a paycheck.
I definitely do not come close to saving $25,000 a year and find it extremely unlikely that a middle class American can maximize their retirement saving without significant employer matching contributions. That being said I do believe the U.S. government does make it extremely easy to save for retirement by backing up these vehicles of saving with a strong tax code.
Additionally, before I could recommend attempting to max out your contributions I would strongly advise paying off any debt with over a 6% interest rate first. Through long term buy and hold investing for retirement you can optimistically expect an annual 6% rate of return. If you have a balance on a credit card card with 18% interest, dollar for dollar, you are losing 12% of your money.