How to Maximize Your Retirement Accounts in 2016
Contributing to a retirement account qualifies you for tax breaks and employer contributions, both of which will grow your nest egg faster. Here's how to take full advantage of the 401(k) and individual retirement account perks you're eligible for in 2016.
Max out your 401(k). Workers can contribute up to $18,000 to their 401(k) plans in 2016. To completely max out this account, you will need to save $1,500 per month or $750 per twice monthly paycheck. A worker in the 25 percent tax bracket who tucks the full amount into a 401(k) plan will save $4,500 on his federal income tax bill. Retirement savers in the 35 percent tax bracket will save $6,300 on the same contribution. Income tax won't be due on this money until it is withdrawn from the account. And if you drop into a lower tax bracket in retirement, you will pay that lower rate on the distributions. If you withdraw that $18,000 while in the 15 percent tax bracket, you will only ultimately pay $2,700 on that contribution.
