Paycheck Tax Withholdings

IRS W-4

This is the form you fill out and give to your employer when you want to change how much federal taxes are taken out of your paycheck.  A higher number in box 5 means less taxes will be taken from your check.”

http://www.irs.gov/pub/irs-pdf/fw4.pdf

 

EDD DE-4

Most employers just use the W-4 above to estimate your state taxes.  But you can adjust state taxes separately.  This is the form you fill out and give to your employer when you want to change how much states taxes are taken out of your paycheck.  A higher number in box 1 means less taxes will be taken from your check.”

http://www.edd.ca.gov/pdf_pub_ctr/de4.pdf

 

 

Retirement Plan Limits

These are the general contribution limits for retirement savings accounts.

401(k), 403(b), and most 457 plans

2016
Age 49 and under $18,000
Age 50 and older Additional $6,000

 

Roth and Traditional IRA contribution limits (subject to income limits)

2016
Age 49 and under Up to $5,500 (must have earned income)
Age 50 and older Additional $1,000

Get more specifics at the IRS website.

Next Steps

Most people are NOT saving enough for retirement.  The key is to take small steps and actually start.  Don’t wait for “someday” or “tomorrow.”  Get started NOW putting something away for retirement.

The three components of saving for retirement are principal (how much money you or an employer puts in), risk/interest rate, and time invested.  If any one of these is falling short, the other two need to to compensate.  So if you don’t take advantage of “time” and start now, you actually have to contribute more “principal” to end up with the same amount of money in retirement as someone else who started earlier.  So start NOW.

If you need to know where or how to open an IRA, I recommend Vanguard for their simple process and low fees.  Always opt to reinvest your dividends.  If you don’t know which funds to invest in, I recommend looking at the Vanguard Target-Date Funds: they have low fees and decent returns.  It is possible to find a good mix of funds that will outperform the Target-Date Funds, but you have to take a lot more responsibility to manage your changing risk tolerance as you grow older.

If you are already saving for retirement, review your account(s) annually, and look into ramping up your savings 1% a year to ease into doing without that income now.  Most people don’t even feel a 1% drop in their spendable income, so give it a try.