What does maxing out retirement mean?
I often hear people talking about “maxing out” their retirement plans, and for the longest time I wondered what exactly that meant. Well, the short answer is that it depends. I did a little research on the IRS web site (see Publication 525 and Publication 590) and this is what I came up with based on 2006 information:
First, it depends on the type of retirement plans you have in mind. For 401(k), Thrift Savings Plans, and SARSEPs, the maximum per year is generally $15,000. For SIMPLE plans, the maximum elective deferral amount is generally $10,000 per year. For traditional IRAs, the maximum amount is usually $4,000. For Roth IRAs, the maximum is also usually $4,000, unless the amount you can contribute has been reduced due to various factors.
Of course, a question like this wouldn’t be tax-related without exceptions. There are all kinds of exceptions and special qualifications that may increase or decrease the amount you can contribute to each of these types of plans based on your individual circumstances. But this does at least give more of an answer to the question of “what does maxing out retirement mean?” — it’s probably safe to assume that a person means contributing somewhere between $4,000 and $15,000 per year toward retirement plans. Sometimes it also means that they’re contributing up to whatever their employer matches, which can vary greatly. Whether or not that’s enough is another question entirely, but it does at least give a starting point to aim toward.
I am probably guilty of overusing and over-generalizing things using this statement. Normally, I am referring to what you with any money you have available after you contribute that amount (which for me is nearly nothing extra). In that case, I am referring to a person maxing out the tax advantaged plans that they have available to themselves. For me, maxing out means this:
1) $15500 to my 401k
2) $4000 to my ROTH IRA
3) $4000 to a spousal ROTH IRA for my wife
4) $5650 to an HSA (which I considder retirement savings because I avoind spending out of it)
So for me, the 2007 ammount is $29,150. As such, it gets pretty much impossible to save more than that.
Wow, that’s some serious retirement savings. I wish I could say the same!
Typically it’s the 19000 range for me as well. I don’t count things like spousal Roth IRAs or HSAs (don’t have one). The two things that I count are 401k and Roth. When the gov’t says I can’t put any more money in them, I call it “maxed out.”
‘Unfortunately’ I make too much for a Roth IRA, so I’m doing as much as I can to max out my retirement savings, which, as others have mentioned, is in the 19K range, my company matching some of my 401k investments. I am guilty of not tracking my previous 401k plans closely, as I never rolled them over into my current one. I could probably get a better return rate on them than I’m currently getting with them being in their own plans.