My Dad called me the other day and we started talking about retirement. (Hi, Dad!) Our conversations got me to thinking about retirement account limits for 2008. My wife makes mandatory contributions to a pension plan, I have a 403b account, and we both have Roth IRAs. We are both in our 30’s. I do not receive any ‘matching’ contributions from my employer. We have a modified AGI of less than 150K. For more information about 403b contribution limits, refer to IRS Publication 571. For more information about IRA contribution limits, refer to IRS Publication 590. (By the way, I know very, very little about taxes or retirement accounts. Please, do your own research and consult a qualified financial professional before making any financial decisions, especially decisions about taxes and retirement accounts. I’m simply writing a post about what I’m doing and I am in NO WAY suggesting that you should do as I do. Seriously, I don’t even trust myself with a credit card, so what do I know? :)) After doing a little research, the actual limit for 403b contributions for 2008 is a little difficult to figure out. Most sources report the 2007 limit of $15,500 but then suggest that the limit, starting in 2008, will go up by $500 per year.
So, for 2008, my retirement account contribution goals will be (based on assumed contribution limits):
| 2008 | Under 50 | Over 50 |
| 403b | $15,500 | Up To $20,500 |
| Roth IRA | $5,000 | Up To $6000 |
I included the “Over 50” numbers for my Dad! So, in 2008, my goal will be to put $25,500 into our retirement accounts. By the way, if you are wondering if you should focus on your 403b (or 401K) or a Roth IRA, may I suggest that you read this excellent article over at Consumerism Commentary? Flexo does a great job of addressing the 401K/Roth IRA question!
Side note: I was very happy to learn that the contribution limits are based on how much the employee contributes. If your company ‘matches’ a portion of your contribution, that ‘match’ does not count against your contribution limit! Also, the 403b limit is based on the assumption that the limit will go up by $500, based on cost-of-living increase. The limit for 2007 is $15,500, and many sources indicate that the limit for 2008 will be $16,000.
(Edit: It looks like the 403b contribution limit will remain unchanged for 2008. It will be $15,500)
Just an FYI – some companies set their own contribution limits. We have a 401k and our company only allows for a max 15% employee contribution. Unfortunately, we can’t reach the 2007 IRS limit (same as 403b) without contributing more than 20%. It’s still a pretty good plan though (100% match up to 6% plus an additional 4% company contribution).
The Consumerism article you link to advises to fund your 401k or 403b up to your employer match and then to fully fund your IRA’s. But the author loses me when he states to then fund the 401k (to the max, I assume – another 9% in my case) “if your company offers you low-cost options”. Anyone know what he means by “low-cost options”? Isn’t investing with pre-tax dollars about as low as you can get?
Mia… You are correct, your employer can limit the amount you can contribute… fortunately for me, my employer allows me to setup my salary in any way that I wish and places no such limits… As for low-cost options… several 401K plans and 403B plans charge large management fees, and should be avoided…
NCN
Ah, thanks NCN. We aren’t charged any fees so I guess we’re in the clear on that. We are working on fully funding both of our IRA’s this year, and I’m curious about our next retirement funding step – fully funding the 401k, etc. I appreciate reading about the steps you’ve decided to take. Your goal of $26,000 is admirable! Will your Dad ever do a guest post? Since I’m closer to his age I’d love to hear from him!
Mia… Will Dad do a guest post? Hmmm… I’ll ask him!
NCN
I have a quick question that I can’t seem to find the answer to. Are the Roth IRA limits simply doubled for a married couple? My best guess is that each person individually opens a Roth IRA and they each have a $4000 annual contribution limit, but I haven’t explicitly read this anywhere.
Kara… I’m going to write a post in response to your question.. Give me a few minutes…
NCN
If you are a prodigious saver, you may wish to inquire with your human resources department about the availability of a state sponsored 457 plan. Non-profit employees may contribute both to a 403(b) and a 457 and the limits are the same, except that the tax code is structured such that you can contribute the maximum to both plans. In other words, you can put 16k into the 403(b) as well as up to 16k into the 457. Very few public sector employees are aware of this powerful option to defer taxes.
In response to Mia, it is incredibly unlikely you are not getting charged any fees — you may not be getting charged account maintenance fees but more likely in the form of fund management fees. Some retirement plans have funds which charge over 1% for “fund management” which is pretty outrageous in today’s investment marketplace where index funds with fees lower than .25% are common. However, some plans make it hard for you to find out the management fees; you may have to ask your plan administrator for a prospectus.
The contribution limit for 2008 remains unchange at $15,500 (under 50), and $20,500 (over 50).