The beginning of the year is a good time to check on the new annual contribution limits to the various available retirement accounts. Our income has been quite variable these last few years, so I regularly adjust the paycheck deferral percentages based on expected income for the year. This has a nice summary of 2022 vs. 2021 numbers for most employer-based accounts.
401k/403b Employer-Sponsored Accounts.
For example, I would break down the applicable limit down to monthly and bi-weekly amounts:
- $20,500 annual limit = $1,708 per monthly paycheck.
- $20,500 annual limit = $788 per bi-weekly paycheck.
If you are contributing to a pre-tax account instead of a Roth, you could also use a to find the detailed impact to your take-home pay.
The higher numbers are for those folks that have the ability to contribute extra money into their 401k accounts on an after-tax basis (and potentially perform an in-service Roth rollover), or those self-employed persons with SEP IRAs or Self-Employed 401k plans.
The investment options in 401k plans have also improved on average steadily over the years with lower fees and costs, allowing your money to compound even faster.
Traditional/Roth IRAs. The annual contribution limits is unchanged from last year, $6,000 with an additional $1,000 allowed for those age 50+.
- $6,000 annual limit = $500 per monthly paycheck.
- $6,000 annual limit = $231 per bi-weekly paycheck.
Most brokerage accounts (, , ) will allow you to set up automatic investments on a weekly, biweekly, or monthly basis. As long as you have enough money in your linked checking account, the broker will transfer the cash over and then invest it on a recurring basis. You may even be able to sync it to take out money the very same or next day as when your paycheck hits.
Health Savings Accounts are often treated as the equivalent of a “Healthcare IRA” due the potential triple tax benefits (tax-deduction on contributions, tax-deferred growth for decades, and tax-free withdrawals towards qualified healthcare expenses). This assumes that you have a high-deductible health insurance plan, you can cover your current healthcare expenses out-of-pocket, you can still afford to contribute to the HSA.
Even though I’ve been parroting the “standard personal finance advice” to raise that contribution percentage and save as much as you can in your 401k for years and years, it still holds true. There is some true mind trickery when the money never touches your bank account. The easiest way for me not to eat potato chips is not the have them in the house. (My nemesis is that Costco mega-sized bag of Himalayan Salt Kettle Chips…) The easiest way to make sure you don’t spend the money that you want to invest, is to never have it touch your bank account.
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