Approximately 60 million workers across the United States rely on the benefits of tax advantage savings accounts, such as a 401(k) when it comes to saving for their future. Many people are eligible to contribute as much as $19,500 to their 401(k) in 2021 but that limit can be updated from year to year for the purposes of keeping pace with inflation.
When you are able to invest $20,000 per year, this can have significant implications for your retirement as well as giving assets to your loved ones in the future. There are three primary reasons why most people choose to try to max out their 401(k) in a given year. These include:
- Growing their wealth on a tax advantage basis.
- Reducing their taxable income for the purpose of saving on taxes.
- Saving enough money to truly retire one day.
Many people vastly underestimate how much they’ll need to retire and this is even more problematic given recent data on increasing longevity. Retirement, for example, could last up to 30 years or even longer. Setting aside over $19,000 a year in your 401(k) account is not necessarily easy. This makes it extremely important to have a consultation with an experienced financial planner and to discuss with an estate planning lawyer how all of this fits into your bigger estate plan.