According to a recent survey from
Fifth Third Bank, fully 90% of Americans do not know the amount of money they
can defer to their 401(k) or other defined contribution plan accounts annually
without triggering tax repercussions. As the Internal Revenue Service (IRS) explains,
the elective deferral/contribution limit for employees who participate in
401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings
Plan has increased from $17,500 in 2014 to $18,000 for the 2015 plan year.
The catch-up contribution limit for employees aged 50 and over also increased
$500, from $5,500 to $6,000. Effective January 1, 2015, the limitation on the
annual benefit under a defined benefit plan under Section 415(b)(1)(A) remains
unchanged at $210,000.
Despite the fact that the IRS
tends to increase these limits by a small margin annually, Fifth Third Bank
researchers find very few retirement savers in the U.S. are either aware of the
limit or actually set their deferrals to match it. This is despite the fact
that following the IRS’s annual deferral increases can give a major
boost to retirement readiness and projected lifetime income levels.
While the survey found that
nearly 60% of respondents feel they are financially savvy, 44% of Americans are
living paycheck to paycheck. Other key findings from the survey show less than
half of Millennials know what a credit score measures, while 60% of Americans
of all ages do not have enough money saved to pay bills for six months in the
case of an emergency or unexpected loss of income.
Fifth Third Bank concludes that
retirement savers tend to do much better in the long run when they have access
to training and education from a financial adviser or some other trusted
professional resource. The bank encourages plan sponsors and advisers to find
ways to efficiently educate more Americans on these key financial topics. Even
if they do not have the assets to make one-on-one financial advice tenable,
Americans have a thirst for support when it comes to budgeting, controlling
credit and creating emergency funds.
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