401K contribution limit in 2023 is now $22,500. In 2023, the 401k contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan will be increased to $22,500. This total is up from $20,500 in 2022. If you have access to any of these plans, take advantage and boost your retirement savings.
Catch Up 401k Contribution Limit
The Internal Revenue Service (IRS) has also announced that the catch-up 401k contribution limit from employees will also be increased in 2023. The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan will be increased to $7,500. This total is up from $6,500 in 2022.
Taken together, starting in 2023, participants in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan who are 50 and older can contribute up to $30,000. The IRS has also noted that the catch-up contribution limit for employees aged 50 and over who participate in SIMPLE plans will also be increased in 2023. For these individuals, the contribution amount will be increased to $3,500 in 2023. This total is up from $3,000.
This change does not appear to affect the match for employers. As you may already know, an employer 401K match means that your employer contributes a certain amount. Typically, the 401k match is a percentage of your annual salary to your retirement plan. This is in effect, free money. For most employees, if you contribute to your 401K, your employer does also. Take advantage of the added limits to further boost your retirement savings on your journey to financial independence.
Conclusion
Tax advantage accounts are one of the feet making up your three legged retirement stool. These three legs include your savings, employer relate accounts such as a pension, and a retirement account. In 2023, the contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan will be increased to $22,500. This total is up from $20,500 in 2022. If you have access to any of these plans, take advantage and boost your retirement savings.
At one time or another, you will have to negotiate your salary. It is not that the task is difficult, but it can be nerve racking. No matter your level, your initial negotiated salary is very important. It will be the basis from which you will gain raises over time. A miscalculation here can be very costly. Therefore, here is our how to negotiate a salary guide. If you are asking how to negotiate a salary, remember: (1) know your worth; (2) do not directly answer a question about the salary that you would accept; (3) never accept the first offer; and (4) know that your salary is only a part of your total compensation package.
How to negotiate a salary?
Know Your Worth
How to negotiate a salary 101, you must know your worth. Before you begin the job search, before you get the job offer, know your worth. Do your research. You must know the average salary for the position based on your skill level, the average range of the salary for someone of your abilities and experience for the size of the company that you will be working for.
You must do this research. This is the only way that you can know if a proposed offer is too high or too low. In doing your research, ask your friends, look online, ask someone at the company in such a manner that they can provide you with the information needed.
Do Not Give A Direct Answer To The Salary Question
In any interview, you will be told a range of the salary for the position. If one is not given to you, ask for the range. This gives you the bounds of the position, but do not take this as a definite range. If you are good enough, if you are attractive enough professionally, they will offer you more than that range. This is why it is so important to not give a number when asked what salary you are looking for. If answered directly, you may unintentionally lock yourself into a low salary, or turn off the employer by going too high.
If you are asked a direct question about salary, inform the recruiter that you can negotiate on salary. This in effect continues the conversation. If the interviewers like you, they will pay you. The trick, have the recruiter give you a range. If the range is lower than what you will accept, you can negotiate up to your number if the interviewers like you.
Never Accept The First Offer
How to negotiate a salary? One of the most important point is to never accept the first offer if the position is not a lock step position. Do not do it. Once an offer is extended, it is typically an invitation to negotiate. Never accept the first offer. If the offer is low, know what your low point is and counter above it. You will know that an offer is low based on your research.
If the offer is in your sweet spot, ask for more. If the offer is above what you think the range is, ask for more. Note that it is unlikely that any employer will match what you come back with in a counteroffer, but they are likely to meet you somewhere in the middle. As such, if your aim is $150,000 and you were offered $140,000, it is advisable to ask for above $150,000. Consider counter offering at $160,000 or above and have the potential employer meet you somewhere in the middle. Do not sell yourself short.
Remember, your first salary at a company will be the basis from which you will gain raises. So the higher your starting point, the faster your salary will grow. Also, typically, 401K packages and other benefits are based on a percentage of that salary. Do not sell yourself short.
Salary Is Not Everything
While your salary is important, it is not everything. When negotiating a salary, it is important to remember that the salary is only one part of your compensation package. If you cannot get the number that you want with regard to a salary, do not forget that you have other options as far as employers but also other areas of your compensation package to negotiate. Think about vacation days, retirement, stock, bonus, transportation and medical coverage to name a few. In some cases, a salary may be lower, however, total compensation may be higher in comparison to another job. The reason for this may be the employer’s health care plan, bonus structure, stock option and retirement plan.
While you may have a salary that is $5,000 lower than a comparably position at another company, you may have a higher 401K match percentage, higher bonus, or receive more stock. As such, while the salary may be lower, your total compensation package may be significantly higher. Therefore, before you accept a compensation package, do a full evaluation.
Conclusion
At one time or another, you will have to negotiate your salary. It is not that the task is difficult, but it can be nerve racking. No matter your level, your initial negotiated salary is very important. It will be the basis from which you will gain raises over time. A miscalculation here can be very costly. Therefore, here is our how to negotiate a salary guide. If you are asking how to negotiate a salary, remember: (1) know your worth; (2) do not directly answer a question about the salary that you would accept; (3) never accept the first offer; and (4) know that your salary is only a part of your total compensation package.
While every situation is different, we sincerely hope that this how to negotiate a salary guide helps you as you look for your next position. Journey to financial independence.
On the journey to financial independence, you will need to save and invest. Once you have saved for your emergency fund, the question is, how to start investing? You start by first investing in yourself. Whether this is by investing in your education to obtain a better job/career option, or doing your due diligence to make appropriate decisions. Investing in yourself is the key to success.
Investing in your future is an extension of investing in yourself. Once you begin to look to the financial markets, when asking how to start investing, look to learning more about the opportunities that are available to you. Educate yourself.
How To Start Investing For Retirement
No matter your age, you should begin thinking about your retirement and related investment options. In thinking about your retirement, you will no doubt hear about traditional IRAs, roth IRAs, SEP, roth 401Ks, 401Ks, 403Bs, 457Bs and TSPs to name a few. Do not simply get lost in the alphabet soup of different retirement plans. Do your due diligence. An investment in your retirement plan education is invaluable to your financial future.
Your retirement plan will depend on (1) whether or not you are an employee vs self-employed and (2) whether or not the retirement plans are employer sponsored or self controlled. It is incumbent upon you to fully understand the plans that are available to you, their contribution limits, mandatory withdraw, age of withdrawal, tax position and penalties associated with early withdraws. It is also incumbent upon you to take advantage of any matching benefits provided to you. For example, a 401K match.
The 401K match provides free money from your employer and is a sure-fire way to achieve financial independence early. Employer 401K match can come in a variety of shapes and sizes. In one instance, the employer will match a portion of your contribution up to a limit. Typically, this limit is represented as a percentage of your salary. Further, an employer may match your contribution if you contribute or irrespective of if you contribute. If your employer provides a 401K match only if you contribute to your 401K, ensure that you are contributing at least up to that threshold. An employer 401K match is free money. Take advantage.
How To Start Investing – Brokerage Account
After establishing your retirement accounts, it is time to begin thinking about other investment options. For example, brokerage accounts. Brokerage accounts are investment accounts that allow you to buy and sell investments such as stocks, bonds, mutual funds, and Exchange-traded funds (ETFs).
There are a number of different brokerage firms where you can set up a brokerage account. These brokerage firms are well known and include Fidelity, Merrill, E-Trade, TD Ameritrade, Robinhood and Vanguard to name a few. Essentially, the brokerage firm is an intermediary that holds your brokerage account and act as an intermediary between you and the investments that you buy and sell.
Once you set up a brokerage account, which is usually free, you will be able to deposit money into that account that you can use to buy investments. Once you begin investing, you can buy and sell investments through your brokerage account. Do your due diligence prior to trading on the different platforms and understand the risk associated. Knowledge is power.
Investing InEducation
Once you have done your research and have established your own investment plan, begin thinking about your legacy, your children and their future. Think about a 529 plan. By contributing to a 529 plan, you are able to offset some or all costs associated with a college education. In many States, two 529 plans are available, an investment plan or a prepaid plan.
The investment plan allows you to contribute by buying and selling shares offered by the State or the State’s agent (similar to investing in the stock market).
The prepaid plan is based on the cost of attending a college. Here, you are prepaying the cost of attendance.
While 529 plans are not deductible on your federal tax filings, many States allow you to deduct a set portion of your 529 contribution from your State tax filings.
How To Start Investing – Caution
Once you have educated yourself and have made the decision to invest for yourself, with a financial planner or with an advisor, you will begin using different investment accounts to your advantage. Pay special attention to the fees and the taxes associated with each account.
One of the biggest item that you should pay attention to is the fees associated with your retirement accounts and the investment options. Whether that is the fees charged by an investment fund, your advisor or related financial professional.
It is important to remember that over time, fees can cripple your financial growth. While paying 1% of your total investment per year may not seem like a lot when you begin investing, Think long term. Project the number of years until retirement and also the amount of funds that you will have in that account. Paying 1% in fees each year can be a significant detriment to your financial growth, imagine if you are paying more. As always, do your due diligence and think long term in your financial decisions.
Conclusion
On the journey to financial independence, you will need to save and invest. Once you have saved for your emergency fund, the question is, how to start investing? You start by first investing in yourself. Whether this is by investing in your education to obtain a better job/career option, or it is doing your due diligence to make appropriate decisions. Investing in yourself is the key to success. Continue investing by educating yourself about the financial markets, plan and execute your plans.
Prior to accepting a job offer, you should evaluate not only the salary offer but also the total compensation package. In some cases, a job’s salary may be lower, however, total compensation may be higher in comparison to another job. The reason for this may be the employer’s health care plan, bonus structure, stock option and retirement plan. With regard to a company’s retirement plan, it is important to pay particular attention to whether or not your future employer provides a 401K match.
An employer 401K match means that your employer contributes a certain amount, typically a percentage of your annual salary to your retirement plan. This is in effect, free money. If you contribute to your 401K, your employer does also.
Your Employer’s 401K Contribution
Employer 401K match can come in a variety of shapes and sizes. In one instance, the employer will match a portion of your contribution up to a limit. Typically, this limit is represented as a percentage of your salary. Further, an employer may match your contribution if you contribute or irrespective of if you contribute.
If your employer provides a 401K match only if you contribute to your 401K, ensure that you are contributing at least up to that threshold. An employer 401K match is free money. Take advantage.
Calculating Your Employer’s 401K Match
If we assume that your employer offers a 100% 401K match on all your contributions each year, up to a maximum of 5% of your annual income. If you earn $100,000, the maximum amount that your employer would contribute to your 401K each year is $5,000.
This $5,000 is typically spread out over the entire year. As such, if you are paid bimonthly, that is approximately 26 pay checks. This means that each paycheck, your employer is willing to match you up to $5,000/26 paychecks, which equals $192. As such, to obtain your full 401K match, you will need to contribute at least $192 to your 401K per pay check.
In the above scenario, if you set up your 401K contribution to contribute at least 5% of your pay to a 401k account, you will ensure that you will get at least the match. However, note that as your salary increases, it is important to ensure that you are contributing enough, but also not too much, such that you are able to obtain your full 401K match.
Ensuring That You Get Your Entire 401K Match
It is important that you monitor how much you contribute to your 401K on a yearly basis. This is important because if you place a high percentage of your salary into a 401K account, you can potentially max out your 401K before your employer hits their 401K match.
In the year 2020, your contribution limits for a 401K is $19,500 (catch-up contribution limit for employees aged 50 and over is $6,500). If your employer’s 401K match is contingent on your contribution, they will only contribute to your 401K if you do. As such, if you hit the 401K contribution limit before the end of the year and can no longer contribute to your 401K for that year, your employer will also not contribute.
To ensure that you will not hit your contribution limit before the end of the year, divide the contribution limit by your salary and multiple by 100. This will provide the maximum percentage of your salary that you can contribute to your 401K without exceeding the contribution limit. In the example above, $19,500/$100,000 = 0.195. 0.195 x 100 = 19.5. As such, with a $100,000 salary and a contribution limit of $19,500, if you keep your yearly contribution at or below 19.5% of your salary, you will not hit your contribution limits before the end of the year. This will ensure that your employer will pay the full match.
Conclusion
Prior to accepting a job offer, you should evaluate not only the salary offer but also the total compensation package. In some cases, a job’s salary may be lower, however, total compensation may be higher in comparison to another job. The reason for this may be the employer’s health care plan, bonus structure, stock option and retirement plan. With regard to a company’s retirement plan, it is important to pay particular attention to whether or not your future employer provides a 401K match. The 401K match provides free money from your employer and is a sure-fire way to achieve financial independence early. Journey to financial independence by ensuring that you receive your employer’s full 401K match.
