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.




The 10 Commandments for Individual Investors

Book Review: Winning the Loser’s Game: Timeless Strategies for Successful Investing by Charles D. Ellis

I recently completed one of the greatest books on investing, written by one of the most influential investors of all time. That book is Winning the Loser’s Game: Timeless Strategies for Successful Investing by Charles D. Ellis.

If you do a search for the best books on investing, Ellis’ Winning the Loser’s Game is always in the top 5. It’s a great, timeless classic on personal investing that is simple and concise. Ellis tells great, and often very funny, stories to convey his points, as well as compelling data to support his claims.

Charley Ellis lays out the most important investment lessons for individual investors. Those looking to save, invest and retire wealthy through diligent saving and investing in low cost index funds must read this book. He lays out the easy and successful ways to get rich (slowly) through proper investing. It is required reading for all my Millennial personal finance readers. Regardless of your investment knowledge, the sound money management skills laid out in this book are a must read for all audiences.

10 Commandments for Investors

One of my favorite parts of Winning the Loser’s Game: Timeless Strategies for Successful Investing by Charles D. Ellis is his 10 commandments for individual investors. Below are the 10 commandments for investors, which is a great guide for Millennial investors.

1) Save, save, save. Invest and save for your future happiness and financial security, as well as an education for your kids. This is the foundation of financial freedom and one day becoming financially independent to do whatever you want, whenever you want.

2) Stop speculating. The more you read up on investing the more you hear every reputable financial advisor insisting you only invest in low-cost index funds. Well some people just have to “play the market” to satisfy and emotional itch. If you do, try to limit yourself to 5% or less of your portfolio and be sure to track your performance carefully. You may stop “playing the market” faster than you think.

3) Don’t invest for tax purposes. Don’t believe in tax shelters or tax-loss harvesting. Don’t do anything in investing primarily for tax reasons. You absolutely should invest in a Roth IRA (or Traditional, but I strongly prefer Roth) and maximize contributions to your tax-sheltered 401(k) every single year. But, outside of these accounts, don’t overthink it.




4) Don’t view your home as an investment. A home is not a good financial investment and never was. But a home can certainly be a fine investment in your family’s future and happiness. Your goal should be buy a modest home that you can afford and that your family will love. Then, pay the mortgage off and live there forever. That’s when your house becomes a good investment.

5) Just say “no” to commodities. Dealing with commodities (oil, gold, silver, corn, livestock, etc.) is really only price conjecture. It is not investing because there is no economic efficiency.

6) Be very leery of stockbrokers and mutual fund salespeople. Their job is not to make you money, but to make money off you. Now not all stockbrokers and mutual fund salespeople are bad, but you must be very careful and watchful when dealing with one.

7) Don’t invest in new or “interesting” investments. Stick to the basics, total stock indices, REITs, emerging markets, etc.

8) Don’t invest in bonds just because you heard they are conservative and safe. Bond prices fluctuate nearly as much as stock prices do. And bonds are terrible against one major risk – inflation.

9) Come up with goals and write them down. And then stick to them. Write down your long-term investing goals (retirement and college), home payoff, retirement income and net worth goals. It’s best to review these goals annually to ensure you are on track.

10) Don’t trust your feelings. When you feel overjoyed, you’re probably in for a bruising. When you feel disenchanted, remember that it’s darkest just before dawn, so don’t take any action. Less is better when it comes to investment activity. Set it and forget, and keep investing.




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 (October 9-13, 2017)

Last week, October 9-13, 2017, all U.S. stock indices reached new all-time highs. The NASDAQ is leading the charge in 2017, with a year-to-date return of nearly 23%. Interesting note; the NASDAQ has logged its 57th all-time high.

Stocks have been setting new highs and interest rates remain low, pushing investment returns well-above their long-term averages. Over the past five years, U.S. stocks returned almost 15% per year, which is roughly twice as much as projected long-term returns most financial experts are predicting (approximately 7% annually).

Last Week’s Stock and Bond Index Performance (October 9-13, 2017)

  • NASDAQ 0.2% (YTD 22.7%)
  • Dow Jones Industrial Average 0.4% (YTD 15.7%)
  • S&P 500 Index 0.2% (YTD 14.0%)
  • U.S. Aggregate Bond Index 0.5% (YTD 3.6%)

Last Week’s Retirement Portfolio Performance Report
(October 9-13, 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 were up 0.52%, whereas the S&P 500 was only up 0.20%. Overall this year, which is 288-days into 2017, my retirement portfolio is up 14.6%. So I am actually slightly beating the market. Slightly.

The Vanguard Target Retirement 2040 Fund (VFORX) is up 14.9% 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. Again, slightly. But, more on why I am not using the 2040 retirement fund later.

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.




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.