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The Minimum Amount You Should Contribute Every Paycheck to Your Retirement

By    |   Wednesday, 17 June 2015 03:46 PM

Retirement accounts such as IRAs and 401(k)s come with caps set by the federal government on how much you can contribute until you're legally maxed out on tax-deferred or tax-exempt money. But what are the minimum contributions a person can, or should, make to a retirement fund?

The law has less to say on this question, although your company might. Some employer-sponsored plans will start by automatically deducting a percentage of pay as the default contribution to a 401(k), and leave it to the employee to contribute more if they choose. Employees will automatically be enrolled in these plans, unless they opt out, according to the U.S. Department of Labor.

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There may also be minimums for retirement accounts in which an employer offers matching contributions. Experts encourage employees to contribute as much as possible to get every available matching dollar.

When matching is not a consideration, and the employee has discretion, perhaps the most frequently repeated mantra of retirement planning is to give till it hurts. The tipping point for pain, of course, will vary from worker to worker based on income, debt and cost of living.

Jonathan Ping at MyMoneyBlog recommends 10 percent of your salary as a starting point, and then keep adding percentage points over time — there's no penalty or fee for changing contribution amounts to a 401(k) — until you hit a sweet spot, where all the tax advantages of retirement contributions are yours, and your cash flow isn't unmanageably cramped.

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"On average, 401(k) plan sponsors say employees should be saving 12 percent of their pay including employer contributions over their entire working career," according to U.S. News & World Report.

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Retirement accounts such as IRAs and 401(k)s come with caps set by the federal government on how much you can contribute until you're legally maxed out on tax-deferred or tax-exempt money. But what are the minimum contributions a person can, or should, make to a retirement fund?
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2015-46-17
Wednesday, 17 June 2015 03:46 PM
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