December 18, 2020

Total 401k Contribution Limit 2020

Total 401k Contribution Limit 2020 in this video I'm going to talk about four tips for maximizing your 401k contributions and there are probably a mistake or two that you're making so make sure that you watch the whole video but before we do that if. This is your first time at her channel or you haven't subscribed click. On the subscribe button at the bottom my name's Travis sickles certified financial planner with sickled hundred financial advisors so there, are two types of 401ks that you need to be aware of the traditional 401k which is usually what we, call just a 401k which goes in pre-tax gross tax deferred and then in a retirement comes out as ordinary income, that's your general 401k and then there's the Roth 401k so that works. A lot like a Roth IRA where goes in after tax grows tax-deferred and in retirement will come out, tax-free now the maximum contribution for these 401k plans is $19,000 for 2019 so that means you, can put in $19,000 anyway you want to split it up into the traditional and the. Roth 401k and if you're 50 or older you can do an additional $6,000 bringing the total contribution to $25,000 for 2019 so that's the basics of how the 401k works so let's get, into tip number one now tip number one is probably the most boring, of all the tips but I'm gonna go over it first and it is the matching contribution probably because you've heard about this before that you need to get the free money. So make sure that you're maximizing your matching dollars so if the match is 3, percent you want to at least contribute 3 percent now check, to make sure if you're doing the 401k on the traditional side versus the raw side make sure that you're still getting the match because not all plans are gonna have the matching contributions on, the roth side now most do but not, all of them so you want to double check that so tip number one for maximizing your 401k contributions get the match so tip number two looks at the credits, make sure that you're getting your credits and the 401k could directly affect the credits that you qualify for so I'm. Gonna go through a couple of examples on different income limits so you can find out, which credits that you might. Qualify for of course there a ton of different credits that I'm not going to go over all of them in this video but let's go through a couple of examples, so the first one is this savers credit and I've talked about a lot about, the savers credit in previous videos but let's go through a quick example so let's say that you your adjusted. Gross income is four to two thousand five hundred dollars and you've already contributed at least four thousand dollars into a retirement plan so it's two. Thousand four you two thousand for your spouse that means at that amount at. Forty two thousand five hundred for married filing jointly you would qualify for an, eight hundred dollar tax credit for the savers credit now let's say that you also contribute it into your Roth IRA or your Roth 401k it doesn't matter let's say, you contributed an additional $2,000 each into your your Roth accounts that would still keep your adjusted gross income at forty two thousand five, hundred giving you the credit of eight hundred now let's say that. You look at your credits before you started to save so instead of taking that additional two thousand and put it into the Roth account you put it into the 401k side. The traditional 401k side. That would bring your adjusted gross income down to thirty eight thousand five hundred dollars that's saving an additional $4,000 now the savers credit maxes out.

At two thousand dollars per person so if you're at thirty eight thousand five hundred for. Married filing jointly that means you're gonna get a 50% on that two thousand of fifty percent credit, so that math works out to go from the original eight hundred dollar credit that we talked about, to two thousand dollar credit that's a huge savings so you've got tax liability of two thousand dollars this credit will eliminate that tax liability, altogether so that's that's a huge benefit this is much better than just a deduction which lowers your, taxable income this is actually going right after your taxes that's what a credit is now let's talk about that child tax credit for a higher income earner so. The child tax credit begins to phase out if you're a single at two hundred thousand and if you're married filing jointly, at four hundred thousand but it's two thousand per child so here's how the math. Works if you make four thousand dollars married filing jointly for every thousand dollars over 400,000 the credit gets reduced by $50. Now each kid is two thousand dollar credit so if you have three, kids that's six thousand dollars in credits that actually means if you take out your calculator and do six thousand divided by fifty. Dollars that's a hundred and twenty thousand dollars so unlike some other credits and deductions the the phase-outs are much smaller with a child tax credit it matters how many. Kids you have so if you have three kids that's a hundred and twenty thousand dollars phase-out and I point this out because. The Roth 401k and the Roth IRAs are usually looked at as better types of accounts but if you.

Can get these free dollars why not this is going, to be much more advantageous and especially if you're getting company matches and now you're getting credits now let's talk about this third one the, premium tax credit so I'm going to bring it up on, the screen really quickly so you can see what the premium tax credit calculator looks like so, just like we saw with the child tax credit it also depends on how big your household is, and your filing status so the first thing you can do is you can check off so I have three kids and you can see here you can choose your state we're in Florida and then you can scroll. Down a little bit further and then choose the income it's good now it's going to pull a different amount, depending on how many people are in your household. So for this example let's put a family of five the less money that you make the more that you're going to qualify for the premium. Tax credit but if you have a household, of five so it's you your spouse three kids in the state of Florida then the top of that threshold is 120, thousand six hundred and eighty dollars so if you make just over that then you start putting more money into your traditional 401k then, you're going to qualify for some premium tax credits but pick your state pick the household makeup and then it's going to show you the range so. If you're looking at that.

Range you can kind of.

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