Leveraging an employer-sponsored retirement such as a 401(k), 403(b), or Thrift Savings Plan throughout your career can propel you to a financially comfortable retirement. If there's a weak spot in these plans, though, it's this: They have limits in terms of how much you can contribute and when. For 2016, the window to contribute slams shut on Dec. 31, the last day of the year.
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Once Dec. 31 comes and goes, you can no longer contribute to your 401(k), 403(b), or Thrift Savings plan for 2016. As long as you're still working for an employer that offers such plans and otherwise qualify to contribute, you will be able to make 2017 contributions as early as Jan. 1, 2017. Since the amount you can contribute is based on the year you contribute it, though, once the window to put money away for 2016 passes, it's gone for good.
How much can you contribute in 2016?
If you're under age 50, you can generally contribute up to $18,000 in 2016. If you're age 50 or up, the typical limit is $24,000, which includes a $6,000 catch-up contribution above and beyond that base. You can't contribute more than you earn, and your employer may very well limit how much of each paycheck you can contribute. In addition, if you're considered a "highly compensated employee," you will likely have a lower limit set on your contribution as well.
That combination of limits essentially means that if you haven't started contributing to your 401(k) for 2016 by now, you will be unlikely to completely contribute the maximum by the end of this year. What you can do, however, is get started and set yourself up on a path of automatic contributions starting in 2016 that can continue throughout 2017 and beyond.
Contribution limits for 2017 are the same as in 2016, so you can start up a contribution plan today with an eye toward keeping it steady into the future, and you wouldn't have to change it next year. The table below shows what that maximum annual contribution amount works out to on a per-paycheck basis, depending on how often you get paid and your age:
|
Pay Cycle |
Under Age 50 |
Age 50+ |
|---|---|---|
|
Weekly |
$346.15 |
$461.53 |
|
Every Two Weeks |
$692.30 |
$923.07 |
|
Twice a Month |
$750.00 |
$1,000.00 |
|
Monthly |
$1,500.00 |
$2,000.00 |
Table by the Author.
You don't have to contribute the maximum in order to contribute to your 401(k), 403(b), or Thrift Savings Plan, and anything you are able to contribute can compound for your future. So contribute what you can up to those limits, and let your money start working for your future.
How can you get started?
Your 401(k), 403(b), or Thrift Savings Plan is an employer-sponsored retirement plan, so your best resource for getting started can be found at your work. Great places to start looking include your employer's internal employee network, your HR manager, or your payroll administrator.
Generally speaking, you'll have to fill out a few online forms to get started. Key ones are those that authorize your payroll deduction, direct your contribution among the funds the plan offers, and name your beneficiaries should you pass away. All in all, it will likely take you somewhere around 15 minutes to complete the paperwork, but rest assured that it's a one-time effort. Once you've started contributing, continuing is generally automatic unless you actively stop it or leave employment.
The best time to start is today
Every year, that year's contribution window for employer-sponsored retirement plans closes on Dec. 31, and once it's gone, it's gone. The most valuable asset you have when it comes to building a retirement nest egg that can help you be financially comfortable during your golden years is your time. No matter what you're able to sock away for your future, the sooner you start saving, the longer your money has to work for you and the greater its compounding potential can be.
So get started with your automatic contributions to your 401(k), 403(b), or Thrift Savings Plan account today, beat the 2016 deadline, and get your money working for you. Once you reach retirement, you'll be glad to have that nest egg set aside to help cover your needs.
