Beginning in 2024, workers will be allowed to contribute up to $23,000 to their 401(k), an increase of $500 from this year. The increase applies to other retirement savings accounts, including the 403(b) plan, most 457 plans and the federal government’s Thrift Savings Plan.
23k is a lot to put in per year. How many people do you think can even afford that? Let alone more
Strange that we aren’t asking why it’s so hard for people to put in the maximum. Seems like that’s the better question. What measures could we put in place that make it easier for poverty wages to better set them selves up for retirement?
If you’re earning poverty wages there’s not a lot you can do. They’re called poverty wages for a reason. Considering you can’t really bring spending down at this income level, the only path is to increase income somehow.
I sure fucking can’t. Especially with $10,000 in medical bills after Aetna decided to stop insuring in my county.
You pay before taxes on traditional contributions so the net income hit is less.
Say your effective tax rate is 30%, then you are eating in gross pay only 18,900 off income to fund 27000 in 401K savings.
The whole point of tax deferred accounts really.
Roth contributions don’t work this way, but most do not max out funds using Roth given the tax difference in retirement vs working.
I want your job if you can put almost 19k a year in your 401k. I couldn’t even get close to that number.
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I’m sorry to hear about your medical condition. That’s a rough hand to have been delt. I’m happy for you that you’re planning ahead and I hope it goes as well as it can for you. My 401k is pretty on par for my age (in terms of a multiple of my annual income based on goggle research). I’ve been putting as much as I can in but no where even close to the limit. What’s pretty sad is most of my co-workers are only putting 5% maybe 10% away and they think that’ll be enough. I try to explain but the vast majority don’t care.
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While I totally agree with this, you need to be making quite a bit in order to have an effective tax rate of 30%. I make six figures and don’t even pay that much.
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It’s not necessarily about how much you make; it’s about how much you spend. For example, if you make the median US household income ($74,580) but spend at the poverty line ($30,000 assuming a family of 4), then you’ve got $44,580 to save/invest – which is enough to max out one wage earner’s 401k ($23,000), IRA ($7,000), spousal IRA ($7,000), and HSA ($8,300) and have $280 left over to put in taxable investments. (In case you think I forgot to account for taxes, note that all these tax-deferred investments would do just that: lower your AGI so much that your current-year tax liability would probably be wiped out completely.)
The trick is living way, way, way below your means. This blog has good advice on how to accomplish that.
Let me stop you right there because I don’t make anything near the median income.
So? You asked about “how many people” can afford it. I’ve proven that 50% of American households could afford it if they really wanted to, and the fact that that 50% apparently doesn’t include you is immaterial.
America is an enormous country. Not all states, regions, and counties are the same. I make close to, but not quite, the median income for my state. And I work two jobs. One full time and another part time. That may be immaterial to you but it isn’t for a lot of people.
Per the article:
For reference, someone full-time at Federal minimum wage (which is unlikely: most minimum wage jobs are fewer hours) makes $15,080.
The amount was already too high to begin with. You add in IRA’s and 401k catch-up and it gets even worse.
It’s mostly a benefit to upper-middlenclass people. The executive officers, presidents, VP’s, and upper-level managers making $200,000-$500,000/year in employment income. An extra $500/year of deductible income probably doesn’t move the needle much either way.
My guess is that it’s not a huge loss of tax revenue, it’s not a significant increase to their retirement savings, not a huge increase in money being invested into the economy. $500 is only 2% of $22,500. Given inflation, it’s hard to imagine this increasing by anything less than that. All in all, the change seems reasonable to me, and at least moving in the right direction if not getting there immediately in 2024.