Financial Information Services

Here are the ROTH IRA and 401k Contribution Limits for 2008, 2009 and 2010. Note that some of the information for 2009 and 2010 can still change as they have not been “officially released”.

Note that in 2010 the income limits to contribute to a ROTH IRA are removed. Rumor is that this will only be for 2010 and a limit will soon be set for 2011. I am unable to locate the ROTH income limits for 2009, so if anyone has these, please leave a comment and I will add them to the table.

Make sure you use the rest of 2008 to max out a ROTH and 401k or 403b if possible. Remeber that investing sooner than later will allow your retirement to grow in the long term. Also consider the fact that since the market is currently down, what better time to buy low and watch it rise!

They are paying 4.5% APY on their High Yield Savings. You only need a minimum balance of $1. This account also comes with a free debit card for easier access to your funds. If you have more than $50,000 to put away, then move up to their Jumbo Secure Money Market account which is currently paying 4.75% APY.

These rates a very competitive considering the current market. The only requirement is that you are over age 50 and a member of the AARP which will cost you $12.50.

I get quite a bit of readers asking how they should best start saving their hard earned dollars. There really is no right or wrong answer for this and it really depends on your current financial situation. Here are my thoughts on this: 

• 401k - If your company offers a 401k match. Start the saving here. Contribute up to max that will get you the full company match. People, this is free money so take it. So if your company matches you up to a 6% contribution then try as hard as you can to have that 6% contribution rate to get all the free money from the match as possible. This year you can contribute up to $15,500 of your salary to a 401k, but stop at the max that will get you the full company match.
• Roth IRA - If you are eligible to contribute to a Roth IRA then max this out next. This year you can contribute $5,000 to a Roth IRA. The reason that a Roth IRA is attractive is that you put in after tax money, but then when to withdraw from it at retirement time you do not pay taxes on the gains, unlike a 401k that works opposite to this.
• Emergency Fund - This is important. An Emergency Fund is that cushion of money that you are going to have available for unexpected expenses, job loss, etc. Be sure to set enough money aside based on your current financial situation to allow you to live comfortably during a hardship. See my post for thoughts on how much you should save.
• Debt - Ok, so you’ve gotten your all the company match in your 401k as well a decent amount of your own money going into the 401k weekly. You also are going to have $5000 in that Roth IRA this year as well as an emergency fund. Now my advice is to tackle your debt. When I say debt, I mean credit card bills. Pay those off, there is no reason to be paying interest to the credit card companies when you could be saving that money and earning interest on it in a High Yield Savings Account or putting more toward retirement.
• 401k - If you have no credit card debt, now take that extra money and try to max out your 401k. Like I said you can contribute up to $15,500 this year, and over time this is only gonna grow with the market
• Savings - And the last thing would be to start building up the savings that you can use for big purchases. At this point, you can’t feel guilty about spending money since you have really set a side a lot of money in savings and requirement as well as built up that emergency fund.

Again, this really depends on your financial situation. If you are in sever credit card debt, then I would say that you forego the ROTH IRA and start tacking the credit card debt there until it is manageable and then add the ROTH back in. And if you have kids you may think about squeezing in a 529 college savings plan in there as well.

 So I just wanted to lay out the options and ideas that are available and now it is up to you to determine the best way to start saving. I know it isn’t easy to save a lot of money with all your current expenses, but you’d be surprised at over time how much a little savings here and can turn into.

Here are the contribution limits for 2008 for each retirement plan (401k, ROTH, 403b, and Simple IRA). I also included the 2007 limits as a comparison:

Note that for a ROTH IRA there are certain income limits that start to phase out how much you can contribute. If you are within the phase out range you can only make a partial contribution. If you are above that range then you are not eligible to make a contribution to a ROTH for that year. When you file your taxes it will tell you how much you can contribute based on your adjusted gross income (AGI). Personally, I usually wait to contribute to my ROTH the day before I file my taxes to make sure I haven’t over contributed based on my AGI.

Also don’t forget that you can still contribute to your ROTH IRA for 2007. Just make sure you do so prior to filing your 2007 taxes.

In an effort to get you to squander more of your requirement, the powers that be have created the 401k debit card. This one is good. Basically once you are approved for a 401k loan you then have access to the funds via a debit card.

The interesting piece is how you pay back the loan. Rather than a payroll deduction, you would receive a statement in the mail that you would have to pay just like a regular credit card. Hmm, I always thought the reason they did payroll deductions was to force you to pay it back.

Ok, lets talk about this. There are people in severe credit card debt as we speak and they were using the bank’s money. Can you imagine what this would be like knowing that it is their own money? I think they apprehension would be much less. Also, let’s not forget that once you leave your current position, most 401k plans require that you pay back the loan immediately. Not to mention the fact that you are reducing your overall investment potential by reducing your balance.

This idea has government bail out written all over it. So I guess it works like this… You charge your retirement on items you don’t really need. You can’t pay the bill. Now your retirement is gone. What to do? Get Congress to bail you out of course at the expense of taxpayers. I think they should kill this thought now before people start using this to buy houses that they can’t afford!!!!

Why not create an account like Bank Of America’s keep the change where after every purchase with your debit card they round up and put that change in a retirement account. People let’s focus on saving for retirement not finding easier ways to reduce it!

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