PITTSBURGH (KDKA) — Some good news for those who sock away money from every pay-check into their 401K retirement fund.
“The IRS announced that there is an inflation adjustment to the amount of money that an individual can contribute pre-tax to their 401K,” financial advisor Carrie Coghill told KDKA Money Editor Jon Delano.
While the 2011 maximum pre-tax contribution to 401K’s was $16,500, the 2012 amount that can be contributed without paying taxes on it is $17,000.
Coghill says that 60 million Americans now have a 401k but most do not set aside from their wages the maximum allowed by law.
“The average 401k contribution is somewhere around 8 percent of income. We have 60 million people contributing to 401ks – 5 percent of them are maxing out.”
But even if most Americans don’t contribute $17,000 a year into their 401K, this latest IRS adjustment is a reminder, says Coghill, about growing your retirement savings.
“When we look at that number about 8 percent contributing of your income, typically it is not enough, if you are looking at your current lifestyle and your current income level, if you want to replace that income level.”
“So what individuals need to look at are both sides — the income, the amount of assets that they have, and what their future spending is expected to be.”
This is a good time to review your 401K.
Can you increase what you’re setting aside in 2012?
Remember, many companies match some or all of what you put it — and every penny you set aside reduces your taxable income.