How Much Should I Invest Each Year for My Retirement?

Annual Contribution Limits

You should contribute up to the maximum amount permitted by your retirement plan. This amount varies depending on the type of retirement plan and adjusts each year for inflation. For 2010, the Internal Revenue Service set the contribution limit for individual retirement accounts at $5,000 and 401k and 403b plans to $16,500.

Earned Income Limits

A taxpayer's retirement plan contributions cannot exceed her earned income for the year. The IRS counts self-employment earnings, wages and salaries as earned income. Interest income, dividends and unemployment payments do not count as earned income.

Bottom Line

CNN Money recommends that people contribute as much money as possible to their retirement plans each year. CNN Money also advises that people who start later may even want to put money aside into taxable retirement accounts to make sure they have enough for their post-working years.

References

• IRS: Publication 590
• IRS: 401k Plan Overview
• CNN Money: How much money do I need to invest for retirement?