Even most Americans with $10,000 to invest couldn't answer these 3 money questions
There's a lot of confusion about how retirement savings accounts work, even among those who are more well-prepared for retirement.
That's what TD Ameritrade concluded after a 2019 survey that The Harris Poll conducted for them asked U.S. adults with at least $10,000 in investable assets to answer questions about 401(k) plans and individual retirement accounts (IRAs).
These three questions were particularly tricky and stumped at least half of all respondents:
1. What's the contribution limit for employees who participate in a 401(k) in 2019 (excluding catch-up contributions)?
Just 19 percent of respondents selected the correct answer: $19,000 .
Source: TD Ameritrade—click to enlarge
In 2019, employees who participate in a 401(k) will be able to contribute as much as $19,000 per year , up from $18,500 in 2018. And that extra $500 could help you more than you may think.
As personal finance site NerdWallet points out, thanks to compound interest, setting aside an extra $500 a year — or about $42 a month — could mean up to $70,000 more in your retirement account.
Even if you aren't maxing out your 401(k) and contributing $19,000, "increasing your savings rate by a percentage point or two every year — and any time you get a pay raise — will make a big difference to you in retirement," says NerdWallet's investing and retirement specialist Andrea Coombes.
TD Ameritrade found that many people are similarly confused about the IRA contribution limit for 2019 : It's $6,000 ($7,000 if you're age 50 or older). Only 35 percent of respondents answered correctly.
2. True or false: You don't need to be in a certain tax bracket to qualify for contributing to a traditional IRA
The correct answer is true , which only 40 percent of respondents selected.
Source: TD Ameritrade—click to enlarge
As long as you have earned income, you can contribute to a traditional IRA. For 2019, you can contribute up to $6,000 a year , or $7,000 if you're 50 or older. "The deduction may be limited if you or your spouse is covered by a retirement plan at work and your income exceeds certain levels," the IRS notes.
And there are restrictions around Roth IRAs, too: There's an income cap , for example, which the IRS sets each year based on modified adjusted gross income (MAGI). For 2019, a single person with a MAGI of $137,000 or more and a married couple making more than $203,000 cannot directly contribute to a Roth.
3. What is the deadline to contribute to your 2018 IRA?
Just 22 percent knew that you can contribute to your 2018 IRA through April 15, 2019 , the tax filing deadline.
Source: TD Ameritrade—click to enlarge
A quarter thought you have to contribute to your 2018 IRA before 2019, but you actually have until the tax deadline to fund an IRA and reduce your taxable income.
You do have to note whether you want your contribution to apply to your 2018 taxes or your 2019 taxes, though, so if you want to take advantage of this tax-reduction strategy, specify that you are making a tax-year 2018 contribution.
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