One big goal on Financial Samurai is to highlight to readers what is financially possible. Once you know what is possible, you minimize your limiting beliefs and tend to strive much farther. Through close to eight hours of research and production, this post will explain how you can add more than $100,000 every year pre-tax to your retirement account if you have the right employer and proper strategic money making mindset.
The 401k maximum contribution for 2016 is $18,000. The increases will likely continue by $500 increments every year or two to keep up with inflation. Contributing $18,000 pre-tax a year for 30+ years will most likely make you a millionaire by the time you retire. Unfortunately, $3 million is the new $1 million, and in 30 years, $7 million will likely be the new $1 million if we assume a 3% annual inflation rate!
The 401k is not enough for most people to retire on. Sure, we potentially have Social Security to help us when we reach, at the earliest, 62 years of age. But I wouldn’t count on the government to properly manage our money until then. Beyond maxing out a 401k every year, I encourage everyone to also invest at least 20% of their after-tax, after-401k money into a diversified investment portfolio.
As a contractor over the past year, I’ve discovered something that will really supercharge one’s pre-tax retirement savings. The discovery still seems too good to be true, so for any of you tax gurus out there, please speak up and correct me if I’m wrong. We are going to crowd source this post into one of the best maximum pre-tax retirement posts around. The research I’ve done is based off the IRS website, my own experience, and speaking to Fidelity’s small business retirement department where I have a rollover IRA, SEP-IRA, and Solo 401k.