401(k) contribution limit will rise to $18,500 next year

Planning young: a retirement roadmap
Planning young: a retirement roadmap

You'll be allowed to contribute an extra $500 to your 401(k) next year.

The government will raise the contribution limit to $18,500 from $18,000 in 2018. It reassesses the limit annually.

A 401(k) is a good way to save for retirement because your money grows tax-free. But there's a limit on how much you can save each year and when you can withdraw the funds.

If your employer doesn't offer a 401(k), you can contribute to an IRA or Roth IRA to save for retirement. They have tax advantages and contribution limits, too. There's also a restriction on who can use a Roth IRA based on income.

The limit on how much you can contribute to your IRA or Roth IRA will remain unchanged at $5,500 next year. But the income eligibility for a Roth IRA will rise.

Here's what you need to know for 2018.

How much can I contribute to my 401(k)?

You can defer up to $18,500 from your paycheck. Those age 50 and older can save even more by making what's called a "catch-up" contribution. That's limited to $6,000 a year, for a total of $24,500.

These limits don't include the matching contribution you may receive from your employer. They also apply to 403(b) plans and the federal government's Thrift Savings Plan.

Related: More about 401(k)s

How much can I contribute to my IRA or Roth IRA?

You can contribute as much as $5,500. If you're 50 or older, you can save an additional $1,000, for a total of $6,500.

Related: The difference between a traditional and Roth IRA

Can I contribute to a Roth IRA?

You might earn too much money to be eligible to contribute to a Roth IRA, which only allows after-tax contributions, but tax-free withdrawals. In general, you can contribute money to a Roth IRA next year if you earn less than $135,000 and are single, less than $199,000 if married and filing jointly, or less than $10,000 if married and filing separately.

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