I opened my Roth IRA in 2008 with $400. Between then and the beginning of this year, I had contributed an additional $200. One of my New Year’s Resolutions for the year was to actually start saving. I figure I don’t need much for my retirement, because I hope to not have to retire or at least be retired for long. But I still need something. I’m starting small. $500 for this year, which works out to 10% of the contribution limit for an IRA.
It looks like next year I’m going to have to increase my savings. Last Thursday, the IRS introduced the first increase in IRA contribution limits in 5 years. Instead of the $5000 limit set in 2008, the limit is now $500 higher for a total of $5500. 401(k) limits have also increased by $500 to $17,500.
So to keep my retirement savings at 10% of the maximum, I’ll have to save an extra $50. Eventually, as I pay down debt, I’ll increase that percentage. But for now, keeping up with contribution limit inflation is the best I can manage.
So why did they increase the limits? It turns out that inflation does have a plus side after all.The Bush tax cuts included a provision that the IRS had to set retirement contribution limits by the Consumer Price Index. As the CPI rises, so does the contribution limit. For the past 5 years, inflation hasn’t been high enough to bother moving the IRA limit. Last year, the 401(k) limit was raised $500, so it’s now $1000 higher than it was in 2008.
Side note, I’ve currently got about $300 sitting in my IRA as cash that I can’t decide what to put it in, plus another $100 coming in by the end of the year. I’m currently invested entirely in a variety moderate risk mutual funds. What’s been performing well for you?