2018 401k Contribution Limits

401k Contribution Limits in 2018

On October 19, 2017 the Internal Revenue Service announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2018. This news means the contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan (TSP) is increased from $18,000 to $18,500. However, the catch-up contribution limit for those age 50 and over remains at $6,000. So if you are 50 or over, you may contribute up to $24,500 towards your 401(k) in 2018.

Roth IRA and Traditional IRA Contribution Limits in 2018

In 2018 both the Traditional IRA and Roth IRA contribution limits will remain flat at only $5,500 for those younger than age 50, and $6,500 for those who are 50 or older. That’s the same limit that’s been in place since 2013. From 2008 to 2012 the IRA contribution limit was $5,000.

2018 Traditional IRA and Roth IRA Eligibility

The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs and to claim the saver’s credit all increased for 2018.

2018 Traditional IRA Eligibility

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or their spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor their spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.)

  • For single taxpayers covered by a workplace retirement plan, the phase-out range is $63,000 to $73,000, up from $62,000 to $72,000.
  • For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $101,000 to $121,000, up from $99,000 to $119,000.
  • For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $189,000 and $199,000, up from $186,000 and $196,000.
  • For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

2018 Roth IRA Eligibility

The income phase-out range for taxpayers making contributions to a Roth IRA in 2018 is $120,000 to $135,000 for singles and heads of household, up from $118,000 to $133,000 in 2017. For married couples filing jointly, the income phase-out range is $189,000 to $199,000, up from $186,000 to $196,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.




Am I Saving Enough For Retirement?

I recently logged in to my Personal Capital account and received the following message;

27% of users like you have saved more.

You’ve saved 73% of the average tax-deferred investments (like IRA & 401K) for your age group among Personal Capital users. Is it time to start saving more? Learn more about saving more and even retiring early. How can I save more?

So, Personal Capital is telling me that I am in the 73rd percentile in my age group when it comes to retirement savings. I appear to stack up pretty well against my fellow Millennial retirement savers. I also like how Personal Capital frames the statement; they actually are encouraging me to save even more. They are telling me that 27% of users like me actually save more. I love the fact that they are really trying to push me to save more.

I can’t argue with this logic because it does push me to want to save more for retirement. Currently I am saving 15% of my income towards retirement. I then receive a 11.5% match from my employer. On top of that, both my wife and I max out Roth IRA accounts. In 2018 I do plan on increasing my retirement savings even more…even if it is by just a couple percentage points.

Millennials, you too, need to push yourself to keep saving more. We should all be striving for an early retirement. And, if you decide to work longer and well into your 60’s, then great, you now have more than enough for retirement in that scenario.

Last Week Stock Market Recap (September 11-15, 2017)

Last week, September 11-15, U.S. stocks reached new highs. The S&P 500 was up 1.6% and reached 2,500, which puts the S&P 500’s year-to-date earnings at 11.7%.

Last Week’s Stock and Bond Index Performance (September 11-15, 2017)

  • NASDAQ 1.4% (YTD 19.8%)
  • Dow Jones Industrial Average 2.2% (YTD 12.7%)
  • S&P 500 Index 1.6% (YTD 11.7%)
  • U.S. Aggregate Bond Index -0.5% (YTD 3.4%)

Last Week’s Retirement Portfolio Performance Report
(September 11-15, 2017)?

Below is a snapshot of my three biggest retirement portfolio mutual fund movers in terms of percentage gained (or lost!) last week.

How Did My 401k Do Last Week?

Last week my retirement accounts matched the S&P 500 performance exactly; up 1.6% on the week ending Friday, September 15, 2017. This year, which is 260 days into 2017, my retirement portfolio is up 9.07%. So I am under-performing the “market”, e.g. the S&P 500 greatly (nearly 3%) as the S&P 500 is up 11.7% so far. On top of that, the Vanguard Target Retirement 2040 Fund is up 12.9% so far in 2017. This is my personal benchmark because I could invest all my retirement portfolio into one account or choose a number of index funds to diversify. I am doing the latter and this year I am losing to the 2040 Target Date Fund.

Can I Beat the Stock Market?

I am actually not trying to “beat the market” with my retirement portfolio…I am trying to match it. I do have alternative indexes in my retirement portfolio to help possibly beat the market, e.g. Small Cap Value, REITs, International, and Emerging Markets. Through lots of reading and research on my part, I’ve found that a number of these assets classes “zig” when the market “zags”.

With that said, if I can beat the market I will absolutely take it (obviously)! Last year in 2016 my retirement portfolio returned 13.01% versus 9.54% from the S&P 500. In addition to the S&P 500, I like to measure my portfolio performance against Target Date Retirement Funds. I specifically like to use the Vanguard Target Retirement 2040 Fund (VFORX) because that is what I used to invest in before I went to all index funds. But if I can’t beat the Vanguard 2040 fund, then why not simply invest in it (one fund) versus the 10+ mutual funds I am in now? Well in 2016 the Vanguard 2040 fund was up only 8.73%. So it under performed the market (S&P 500) by nearly 1%, and I personally beat it by nearly 5%. So that tells me I am on the right track with my well diversified portfolio.




Millennial Personal Finance Blog

My goal with this Millennial personal finance blog is to show all Millennial’s that you have the power to take control of your personal finances through self-education and self-development on money and finances, and by striving to become financially literate. That is what I have been doing for years now, focusing on becoming an expert in financial literacy, so I can one day become financially independent. I’m trying to prove to Millennial’s that we can all do this and thrive with money. We Millennial’s have the greatest resource on our side to become financially independent and build wealth…time! Save, invest, and let compound interest do the rest.

Follow my blog as I highlight relevant personal finance and retirement topics pertaining to us Millennial’s. You can also join my journey as I track the true cost to raise a child these days. Most of my research shows that on average it costs $14,000 per year to raise a child, which equates to roughly $250,000 to raise a child from birth through high school (the cost of college is not included in this $250,000). I am trying to defy that price tag and show that a Millennial family can raise a child on well less than $250,000…or I will come to the sad realization that this number is dead on. Time will tell.




How to Become a Millionaire?

How Long Does It Take To Become A Millionaire?

If you are a Millennial you’re lucky because you have plenty of time to achieve millionaire status. Years ago I finally gave myself a raise by creating a monthly budget and diligently tracking each and every expense. I was able to pay off debt with ease and pay myself first, for both retirement (long-term) and emergencies (short-term). This is why I finally set my sights on becoming a millionaire. A Millennial Millionaire, to be exact.

First off, it takes a long time to become a millionaire (stating the obvious here). But I want to say this first and foremost because you don’t get rich quickly or overnight. It takes time. In order to become a millionaire you must save and invest carefully over many years…decades actually. If you’re a Millennial in your 20’s or 30’s, it will realistically take you until your late 40’s (best case) or well into your 50’s and 60’s. The more you save and the sooner you begin, the better your chances are overall.




How Much to Save Monthly to Become a Millionaire?

The below calculations are based on an 8% annual return. The stock market has historically returned 10% over the last 90+ years, but I chose to go a bit more conservative with my projections and rounded down versus up. Most of us Millennials will be heavy in stocks, but we won’t be 100% stocks the whole time so 10% is going to be tough to achieve for decades straight.

And the good news is, if you get 10% or 12% returns, you’ll become a millionaire sooner!

  • $200/month = 46 years to become a millionaire
  • $322/month = 40 years to become a millionaire
  • $484/month = 35 years to become a millionaire
  • $735/month = 30 years to become a millionaire
  • $1,140/month = 25 years to become a millionaire
  • $1,821/month = 20 years to become a millionaire
  • $3,070/month = 15 years to become a millionaire

This goes to show you that it is relatively easy to save and invest over time, and slowly become a millionaire. The trick is saving regularly and saving enough. In fact, I think you have to save so much that its borderline uncomfortable for you. Push yourself and save more and more each year. You’ll be surprised at how addicting it becomes.

Also, working for an employer who matches your 401(k) contributions is a huge bonus. It is absolutely something to consider when reviewing/considering your next job/employer.

A Millennial’s Path to Millionaire Status

Last week I wrote about my path to becoming a Millennial Millionaire. See how long I estimate it will take my wife and I to achieve millionaire status.

 




One Millennial’s Path to Millionaire Status

I have been steadily investing for a decade now. It took me approximately 7 years to hit the six figure club ($100,000). I have three accounts that make up my retirement investments; my work 401(k), a Roth IRA and my wife’s Roth IRA. My wife is self-employed so that is her only source of retirement savings at this point.

The Power of Compounding Interest is Real (Powerful)

We are now less than two years away from hitting the quarter million dollar mark ($250,000). The power of compounding interest is real…and I love every minute of it. We are closing in huge milestone dollar amounts.

I estimate that we will have $500,000 in our collective retirement accounts in the next 5-6 years.

Millionaire by 45?

I estimate that our million dollar day will be in roughly 10-12 years. That means my wife and I should be millionaires in our mid-40’s. That means we should have $2,000,000 in less than 20 years.




Multimillionaire by Late 50’s?

I believe we should be multimillionaires by our late 50’s, which means we would have more than $3,000,000 in retirement income. This is a long ways out and the markets are surely unpredictable, but without a plan and a goal, what do I have to aim for?

All of these assumptions are based off my current savings rate. I obviously plan to increase that each year, so in theory I should be able to hit my goals a bit sooner. But it is hard to anticipate future savings rate so I am going off what I know now…my currently retirement savings rate.

I strongly encourage all of my millennial readers to track their progress as well. Set little milestone victories for yourself as well. Try and hit $250,000 in X amount of years, then $500,000 in X amount years, and then finally $1,000,000 in X amount of years.




Stock Market Recap (August 21-25, 2017)

Last Week’s Stock and Bond Index Performance (August 21-25, 2017)

  • NASDAQ 0.8% (YTD 16.4%)
  • Dow Jones Industrial Average 0.6% (YTD 10.4%)
  • S&P 500 Index 0.7% (YTD 9.1%)
  • U.S. Aggregate Bond Index 0.2% (YTD 3.4%)

Last Week’s Retirement Portfolio Performance Report
(August 21-25, 2017)?

Below is a snapshot of my three biggest retirement portfolio mutual fund movers in terms of percentage gained (or lost!) last week.

The below mutual funds are held within my work 401(k) plan as well as two separate Roth IRA plans. I currently invest 15% of my income into my company Roth 401(k), and that doesn’t include the company match I get. All accounts are held with Vanguard (so as you can see I primarily invest in Vanguard funds because of this).

  1. Vanguard FTSE Emerging Markets ETF (VWO) 2.7%
  2. Vanguard REIT Index Fund (VGSLX) 1.9%
  3. DFA U.S. Small Cap Value Portfolio (DFSVX) 1.7%

Can I Beat the Stock Market?

I am actually not trying to “beat the market” with my retirement portfolio…I am trying to match it. I do have alternative indexes in my retirement portfolio to help possibly beat the market, e.g. Small Cap Value, REITs, International, and Emerging Markets. Through lots of reading and research on my part, I’ve found that a number of these assets classes “zig” when the market “zags”.

With that said, if I can beat the market I will absolutely take it (obviously)! Last year in 2016 my retirement portfolio returned 13.01% versus 9.54% from the S&P 500. In addition to the S&P 500, I like to measure my portfolio performance against Target Date Retirement Funds. I specifically like to use the Vanguard Target Retirement 2040 Fund (VFORX) because that is what I used to invest in before I went to all index funds. But if I can’t beat the Vanguard 2040 fund, then why not simply invest in it (one fund) versus the 10+ mutual funds I am in now? Well in 2016 the Vanguard 2040 fund was up only 8.73%. So it under performed the market (S&P 500) by nearly 1%, and I personally beat it by nearly 5%. So that tells me I am on the right track with my well diversified portfolio.




Millennial Personal Finance Blog

My goal with this Millennial personal finance blog is to show all Millennial’s that you have the power to take control of your personal finances through self-education and self-development on money and finances, and by striving to become financially literate. That is what I have been doing for years now, focusing on becoming an expert in financial literacy, so I can one day become financially independent. I’m trying to prove to Millennial’s that we can all do this and thrive with money. We Millennial’s have the greatest resource on our side to become financially independent and build wealth…time! Save, invest, and let compound interest do the rest.

Follow my blog as I highlight relevant personal finance and retirement topics pertaining to us Millennial’s. You can also join my journey as I track the true cost to raise a child these days. Most of my research shows that on average it costs $14,000 per year to raise a child, which equates to roughly $250,000 to raise a child from birth through high school (the cost of college is not included in this $250,000). I am trying to defy that price tag and show that a Millennial family can raise a child on well less than $250,000…or I will come to the sad realization that this number is dead on. Time will tell.




How to Measure Investment Performance

In you are anything like me, you are always wondering how your investments are doing and could you be doing better. Most financial experts suggest you measure your investment portfolio against “the market”, aka the S&P 500. I totally agree with that, however, I would suggest a couple other indices to measure yourself against.

All-In-One Funds for Millennials

In addition to the S&P 500, I also like to measure my retirement portfolio against a few other all-in-one funds out there that make really good sense for a Millennial investor.

I am specially referring to the Vanguard 2040 Target Date Retirement fund, the Vanguard LifeStrategy Growth fund, or the Vanguard Balanced Index fund. The latter ‘Balanced’ fund would be much more on the conservative side for a Millennial, but still a viable option for a Millennial who saves aggressively and is afraid of market risk and volatility.

As you can see from the chart below, I am losing handily to the market and my other Millennial indexes. Oddly enough, I used to be invested exclusively in the LifeStrategy Growth fund via my work 401(k). And my wife and I used to be exclusively in the Vanguard Target Date 2040 fund via our Roth IRAs.

I will keep a very close eye on these benchmarks over the next couple of years, because it may make more sense for me to invest in one simple “all-in-fund”. These rebalance automatically and make investing very simple and cut-and-dry. But I do like diversifying myself and adding more asset classes that aren’t weighted nearly as much in these typical funds, which would include REITs, Emerging Markets, and Small-Cap Value. With that said…diversifying with these classes isn’t helping me just yet.

But, investing is a long-term strategy and I feel like my portfolio is just hitting its stride and beginning to take shape for the long haul. I am a good 20+ years away from retiring.

Funds YTD 1-Year 3-Year 5-Year
My Portfolio  8.10% 12.50% 8.10% 10.80%
S&P 500 (VFIAX) 11.90% 16.79% 10.79% 14.61%
Total US (VTSAX) 11.21% 16.76% 10.36% 14.59%
TDF 2040 (VFORX) 12.78% 15.71% 7.23% 11.26%
LifeStrategy 80/20 (VASGX) 11.90% 14.29% 7% 10.41%
Balanced 60/40 (VBIAX) 7.90% 9.70% 7.37% 9.55%




Stock Market Recap (July 24-28, 2017)

This past week, July 24-28, the stock market was actually perfectly flat. The S&P 500 finished the week at 0.0%. With more than half of the companies in the S&P 500 having reported second-quarter results, earnings are up 9.1% year-over-year, signaling that the profit rebound remains intact.

Last Week’s Stock and Bond Index Performance (July 24-28, 2017)

  • NASDAQ -0.2% (YTD 18.4%)
  • Dow Jones Industrial Average 1.2% (YTD 10.5%)
  • S&P 500 Index 0.0% (YTD 10.4%)
  • U.S. Aggregate Bond Index -0.2% (YTD 2.8%)

Last Week’s Retirement Portfolio Performance Report (July 24-28, 2017)?

Below is a snapshot of my three biggest retirement portfolio mutual fund movers in terms of percentage gained (or lost!) last week.

The below mutual funds are held within my work 401(k) plan as well as two separate Roth IRA plans. I currently invest 15% of my income into my company Roth 401(k), and that doesn’t include the company match I get. All accounts are held with Vanguard (so as you can see I primarily invest in Vanguard funds because of this).

  1. Vanguard International Growth Fund (VWILX) 1.3%
  2. Vanguard REIT Index Fund (VGSLX) 0.5%
  3. Vanguard FTSE Emerging Markets ETF (VWO) 0.4%

Can I Beat the Stock Market?

I am actually not trying to “beat the market” with my retirement portfolio…I am trying to match it. I do have alternative indexes in my retirement portfolio to help possibly beat the market, e.g. Small Cap Value, REITs, International, and Emerging Markets. Through lots of reading and research on my part, I’ve found that a number of these assets classes “zig” when the market “zags”. I am purposely over-weighted in Small Cap Value, which at times helped me beat the market and at the same time lag the market.

With that said, if I can beat the market I will absolutely take it (obviously)! Last year in 2016 my retirement portfolio returned 13.01% versus 9.54% from the S&P 500. In addition to the S&P 500, I like to measure my portfolio performance against Target Date Retirement Funds. I specifically like to use the Vanguard Target Retirement 2040 Fund (VFORX) because that is what I used to invest in before I went to all index funds. But if I can’t beat the Vanguard 2040 fund, then why not simply invest in it (one fund) versus the 10+ mutual funds I am in now? Well in 2016 the Vanguard 2040 fund was up only 8.73%. So it under performed the market (S&P 500) by nearly 1%, and I personally beat it by nearly 5%. So that tells me I am on the right track with my well diversified portfolio.

The primary reason I was able to beat the market last year was due to the strong performance of my Small Cap Value holdings, which I am weighted heavily in.




Over the last 3 years my retirement portfolio is up 6.8% versus 6.5% from the Vanguard 2040 Target Date Fund. However, over the last 5 years my retirement portfolio is only up 10.5% versus 11.29% from the Vanguard 2040 Target Date Fund. This target date retirement fund is my personal benchmark. If I can’t beat or match it, I should simply be in it exclusively.

I am a Millennial, a liberal arts major, and I am my own financial advisor. I am strongly considering using the services of robo-advisor Betterment, however. The more I read and research Betterment, the more I like their product, services, and overall costs. But at this point, I am managing my own portfolio.

Millennial Personal Finance Blog

My goal with this Millennial personal finance blog is to show all Millennial’s that you have the power to take control of your personal finances through self-education and self-development on money and finances, and by striving to become financially literate. That is what I have been doing for years now, focusing on becoming an expert in financial literacy, so I can one day become financially independent. I’m trying to prove to Millennial’s that we can all do this and thrive with money. We Millennial’s have the greatest resource on our side to become financially independent and build wealth…time! Save, invest, and let compound interest do the rest.

Follow my blog as I highlight relevant personal finance and retirement topics pertaining to us Millennial’s. You can also join my journey as I track the true cost to raise a child these days. Most of my research shows that on average it costs $14,000 per year to raise a child, which equates to roughly $250,000 to raise a child from birth through high school (the cost of college is not included in this $250,000). I am trying to defy that price tag and show that a Millennial family can raise a child on well less than $250,000…or I will come to the sad realization that this number is dead on. Time will tell.