With a new tax bill on the table, one of the hot topics has been capping 401(k) contributions to offset some of the other cuts proposed. What does that really mean for the average person? For the year 2017, the employee contribution limit is at $18,000 for 401(k) plans. There’s also a catch-up contribution limit for employees over 50 allowing them to contribute an additional $6,000. That means in 2017 an employee over 50 could contribute a total of $24,000 through salary deductions. That’s a tremendous amount of savings opportunity for retirement!
While only a small number of Americans meet that maximum contribution number every year, the idea of shrinking that number is not a smart one. Reducing the contribution limit would directly impact only a small number of people making it sound like a logical option. However, it does nothing to point out that a majority of Americans are not saving enough for retirement. No matter how you fall on the political spectrum, retirement and income throughout retirement should be a concern for you and anyone planning to retire at some point.
Legislature has a way of encouraging or discouraging various types of behavior and any legislature that discourages Americans from saving for retirement is not something positive. You may be thinking it won’t affect you since you don’t make the maximum annual contribution but it could in the future. It could put more strain on Social Security in the future by reducing the ability of the individual to fund their own retirement. As pension plans disappear and cost of living adjustments for Social Security Income dwindle, let’s not take away the ability of each individual to save for their own personal needs in the future. We should all be able to support legislature that allows us to be responsible savers and encourages others to save for their own future needs as well.