Will rising inflation increase 401K and Roth contribution limits for 2019?

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AtlasShrugged?
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Will rising inflation increase 401K and Roth contribution limits for 2019?

Post by AtlasShrugged? » Sat Jun 16, 2018 8:06 am

Bogleheads....I am wondering the likelihood of Roth IRA contribution limits increasing to 7K (6K + 1K catchup), and 401K limits going to 25K (19K + 6K catchup) in light of rising inflation. My guess is that it will, but I think this depends on the CPI in August, right?

My other question is whether the 6K catchup for 401K - does that have the ability to rise with inflation? The only reason I ask is that the Roth catch-up of 1K annually is set by law and will not increase, as I understand it.
“If you don't know, the thing to do is not to get scared, but to learn.”

mptfan
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Re: Will rising inflation increase 401K and Roth contribution limits for 2019?

Post by mptfan » Sat Jun 16, 2018 8:23 am

AtlasShrugged? wrote:
Sat Jun 16, 2018 8:06 am
Bogleheads....I am wondering the likelihood of Roth IRA contribution limits increasing to 7K (6K + 1K catchup), and 401K limits going to 25K (19K + 6K catchup) in light of rising inflation. My guess is that it will, but I think this depends on the CPI in August, right?
Right. The data will be available in September, and the IRS will announce the limits for 2019 in October.

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AtlasShrugged?
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Re: Will rising inflation increase 401K and Roth contribution limits for 2019?

Post by AtlasShrugged? » Sat Jun 16, 2018 9:17 am

The data will be available in September, and the IRS will announce the limits for 2019 in October.
Yes....If I am doing the math right, the current calculation using CPI laid out in Internal Revenue Code section 219(b)(5)(C) yields a calculation of 5,900+, which I believe means the limit will go from 5,500 to 6,000. That is really what I am looking to confirm.

The wild card for me is the 401K calculation. Not sure how that one works.

The reason I am asking: In BigCorp, it is the season of raises. I need to figure out what % of income to set aside to max out my 401K. I am currently at 20%, and max out my 401K. If the limit goes up, then I have to leave my contribution alone. If the limit remains unchanged, I can lower my percent of salary contributed. Trying to plan ahead. :happy

It would be great if we had a wiki page that lays out the calculation, with a link to CPI. That might eliminate a whole class of posts (like this one).
“If you don't know, the thing to do is not to get scared, but to learn.”

Spirit Rider
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Re: Will rising inflation increase 401K and Roth contribution limits for 2019?

Post by Spirit Rider » Sat Jun 16, 2018 9:20 am

Based on projections using the just released May CPI.

The 402g limit is barely above $19K. It is unlikely inflation will lower, so it is reasonable, but not certain it will increase to $19K.

The catch-up isn't even close to $6500, so unless we become more like Venezuela it is unlikely to increase from $6K.

I will have to check on IRA projections.

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neurosphere
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Re: Will rising inflation increase 401K and Roth contribution limits for 2019?

Post by neurosphere » Sat Jun 16, 2018 9:56 am

AtlasShrugged? wrote:
Sat Jun 16, 2018 9:17 am
I need to figure out what % of income to set aside to max out my 401K. I am currently at 20%, and max out my 401K. If the limit goes up, then I have to leave my contribution alone. If the limit remains unchanged, I can lower my percent of salary contributed. Trying to plan ahead. :happy
Why do you have to change your percentage? What happens once you get to the max contribution during the year? Are your contributions stopped at $18,500 (or whatever) or does the excess go into an after-tax account?

If you get a raise but the max contribution amount does not change, it seems the only consequence will be that you max out your 401k a little earlier in the year, right?
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes".

mptfan
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Re: Will rising inflation increase 401K and Roth contribution limits for 2019?

Post by mptfan » Sat Jun 16, 2018 9:58 am

AtlasShrugged? wrote:
Sat Jun 16, 2018 9:17 am
The data will be available in September, and the IRS will announce the limits for 2019 in October.
Yes....If I am doing the math right, the current calculation using CPI laid out in Internal Revenue Code section 219(b)(5)(C) yields a calculation of 5,900+, which I believe means the limit will go from 5,500 to 6,000. That is really what I am looking to confirm.
I am not an expert on this, so take what I say with a grain of salt, but I don't think a number greater than $5,900 is enough to increase the limit to $6,000...I think the calculated number has to actually be $6,000 or greater.

Spirit Rider
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Re: Will rising inflation increase 401K and Roth contribution limits for 2019?

Post by Spirit Rider » Sat Jun 16, 2018 10:49 am

mptfan wrote:
Sat Jun 16, 2018 9:58 am
AtlasShrugged? wrote:
Sat Jun 16, 2018 9:17 am
The data will be available in September, and the IRS will announce the limits for 2019 in October.
Yes....If I am doing the math right, the current calculation using CPI laid out in Internal Revenue Code section 219(b)(5)(C) yields a calculation of 5,900+, which I believe means the limit will go from 5,500 to 6,000. That is really what I am looking to confirm.
I am not an expert on this, so take what I say with a grain of salt, but I don't think a number greater than $5,900 is enough to increase the limit to $6,000...I think the calculated number has to actually be $6,000 or greater.
You are correct. Retirement plan limits are rounded down.

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Earl Lemongrab
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Re: Will rising inflation increase 401K and Roth contribution limits for 2019?

Post by Earl Lemongrab » Sat Jun 16, 2018 4:00 pm

neurosphere wrote:
Sat Jun 16, 2018 9:56 am
AtlasShrugged? wrote:
Sat Jun 16, 2018 9:17 am
I need to figure out what % of income to set aside to max out my 401K. I am currently at 20%, and max out my 401K. If the limit goes up, then I have to leave my contribution alone. If the limit remains unchanged, I can lower my percent of salary contributed. Trying to plan ahead.
Why do you have to change your percentage? What happens once you get to the max contribution during the year? Are your contributions stopped at $18,500 (or whatever) or does the excess go into an after-tax account?
Depends on the plan. If the plan doesn't have true-up matching, then a participant needs to make sure that the minimum contribution for full match is made each pay period. Megacorp was that like that. However, it did have after-tax with matching, so I always put it on the full permitted amount (30% when I left) and let it switch over to after-tax.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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neurosphere
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Re: Will rising inflation increase 401K and Roth contribution limits for 2019?

Post by neurosphere » Sat Jun 16, 2018 6:15 pm

Earl Lemongrab wrote:
Sat Jun 16, 2018 4:00 pm
neurosphere wrote:
Sat Jun 16, 2018 9:56 am
AtlasShrugged? wrote:
Sat Jun 16, 2018 9:17 am
I need to figure out what % of income to set aside to max out my 401K. I am currently at 20%, and max out my 401K. If the limit goes up, then I have to leave my contribution alone. If the limit remains unchanged, I can lower my percent of salary contributed. Trying to plan ahead.
Why do you have to change your percentage? What happens once you get to the max contribution during the year? Are your contributions stopped at $18,500 (or whatever) or does the excess go into an after-tax account?
Depends on the plan. If the plan doesn't have true-up matching, then a participant needs to make sure that the minimum contribution for full match is made each pay period. Megacorp was that like that. However, it did have after-tax with matching, so I always put it on the full permitted amount (30% when I left) and let it switch over to after-tax.
Oh right, I always forget that some don't match "early" and don't have a year-end true up. For both my wife and I, we can get the full match in the first half of the year, for example, if we max out our pre-tax or Roth 401ks by then.

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