I’m a certified financial planner – here’s the salary you should be earning to max out your 401(K) contributions

According to one retirement expert, Americans who earn more than $75,000 should generally be maxing out their 401(K) contributions each year.

Certified financial planner Rachael Burns says that while circumstances vary, anyone with no dependents above that income threshold should contribute the full amount to ensure a good quality of life in retirement.

“If you make $75,000 and you don’t have kids, but you do have someone to share your living expenses with, maxing out your 401(K) is probably a realistic goal,” she told DailyMail.com.

A 401(K) is a private plan to which both an individual and their employer contribute — and is typically responsible for the majority of a retiree’s income.

The current contribution limit is $22,500 per year — and consulting firm Mercer predicts the limit will rise to $23,000 by 2024, in line with the cost of living.

Burns said, “It’s hard to put a specific income figure on it, like if you have to take care of a family of four with an income of $75,000, you’re not going to have nearly enough money to max out your 401(K).” .’

It also depends on where you live, she added, as spending is significantly higher in some states and cities than others.

“But the most important thing is that you prioritize 401(K) savings,” she said. ‘If you’re looking for a nice new car or a home renovation, it’s important to first make sure you’re saving enough for your retirement. That should always be a priority.’

By maximizing contributions to pension pots, employees can benefit from tax-deferred growth.

With a traditional 401(K) plan, employees don’t have to pay taxes on their retirement savings, but they do pay income taxes during retirement.

But in the intervening years, savers can take advantage of compound growth on their pots. This is the interest that accrues on your savings, effectively allowing your money to snowball over time.

For example, if an employee put an extra $500 into his 401(K) next year and it yielded a 10 percent investment return, he would end the year with $550.

The following year, interest would accrue on the $550 amount.

“The difference can be shocking because the compound growth of those increases over 10, 20, 30 years can make a huge difference,” Burns previously told DailyMail.com

“You need to keep increasing your savings so you’re prepared because the cost of living will continue to rise by the time you retire.”

Consulting firm Mercer expects next year’s contribution limit to be $23,000 – up from $22,500 this year

The IRS sets limits on what employees can contribute to their retirement plan to balance the tax benefits of these pots. In fact, it prevents excessive deferred tax savings from growing on individual accounts.

Other retirement plans, such as Roth IRAs, place similar limits on contributions.

Employees should be careful not to exceed these limits, as this could result in the IRS requiring you to immediately pay taxes on the excess money.

A separate analysis shows that a 25-year-old employee could earn $218,000 by saving an additional $100 a month in his 401(K).

This figure is nearly four times what the same person would earn if they put the money in a standard savings account, according to personal finance experts at GoBanking Rates.

Personal finance experts at GoBankingRates calculated how much each age group would earn if they invested $100 in their 401(K) each month from now until age 65.

Currently, the national average savings rate is about 0.42 percent, which means that a 25-year-old depositing $100 into his account would earn $52.36 by the time he retires, at age 65.

But estimates show that in a 401(K), they can expect an annual return on investment of 6.5 percent, which could see their savings snowball.

In addition, GoBankingRates points out that the earner could add as much as $436,000 if his employer raised his 401(K) contributions to 3 percent.

A 30-year-old who invested the same $100 a month in his 401(K) would end up with 154,032 at age 65, according to the analysis.

A 35-year-old, meanwhile, would have $107,264, while a 40-year-old would save $73,129.

A 60-year-old who put aside $100 a month would earn $7,071 — or $14,141 if his employer matched the contributions.