COMMENTARY | While I appreciate the fact that the IRS has increased the tax-free contribution limit for the 401(k) by an extra $500, it doesn't help me as a middle-class worker. I've never been able to figure out a way to invest the full contribution limit of $17,000, much less the new limit of $17,500.
According to a recent article by CNNMoney, this is the second year in a row that the IRS has responded to rising inflation by increasing the contribution limit.
One of my colleagues, who continued to work part-time even though she was in her 80s, told me she had devoted her entire paycheck to her 401(k) when she was younger. She lived on her husband's income. While I admire her thriftiness, I don't know many people today who can make it on one income.
Failing the experiment
My husband and I did try an experiment to see if we could live on one income. We didn't put my salary in a company sponsored retirement plan, however. Instead, we just stashed it away in an emergency fund. It made for sense to us since we would have to access our rainy-day account if we experienced a job loss or major change of circumstance. Unfortunately, living on one income didn't work too well for us. The best we were able to do was live on his entire income and half of my income.
Boosting our contribution
Although we can't afford to sock $17,500 away for retirement every year, we can afford to put in the minimum amount that our companies match. It's like getting free money in our 401(k) plan. Then we do our best to save into our Roth IRA plans. I have no idea what our tax rate will be like when we retire, but I just feel better knowing I can access money from the Roth IRA without owing the government any taxes when I'm retired.
Since I turned 40, I've made it my goal to increase my retirement savings by 1 percent each year. Evidently when I hit 50, I'll be able to make official catch-up contributions to my 401(k). If I was 50 right now, I'd be allowed to contribute an extra $5,500 on top of the $17,500.
As a middle-class person who is years away from retirement, I'd rather the IRS make other changes that would help me in difficult times. For example, why don't they eliminate the 10 percent penalty for early withdrawal? The fact is many middle-class people have unexpected emergencies. Although we shouldn't tap our retirement accounts, sometimes that's all we have because we simply aren't rich.
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