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.