Investing · Module 7 of 11
Limits, locks and deadlines
How much you can put into tax-advantaged accounts, the cost of taking money out early, and the deadlines to know.
Key terms in Limits, locks and deadlines
- Contribution limit
A contribution limit is the maximum amount that may be put into a particular retirement account in a year. In the United States the Internal Revenue Service sets different caps for each plan type, such as 401(k)s, IRAs, and SIMPLE plans, and adjusts them periodically for the cost of living. Amounts above the cap can be treated as taxable income.
Source: Internal Revenue Service, Retirement topics - Contributions
- Early distribution tax
The early distribution tax is a 10 percent additional federal tax in the United States on certain withdrawals from retirement plans taken before age 59 and a half. It applies to the taxable portion and is meant to discourage using retirement money for other purposes. The law lists exceptions, including disability and certain medical costs.
- Catch-up contribution
A catch-up contribution is an extra amount that people aged 50 or older may add to certain retirement accounts beyond the usual annual limit. In the United States the allowance varies by plan type, with separate figures for 401(k)s, SIMPLE plans, and IRAs. A higher allowance applies in some plans to workers aged 60 through 63.
Source: Internal Revenue Service, Retirement topics - Catch-up contributions
- Required minimum distribution
A required minimum distribution, or RMD, is the smallest amount a United States account owner must withdraw each year once reaching a set age, currently 73. It applies to traditional IRAs and most workplace plans but not to Roth IRAs during the owner's life. Missing the withdrawal triggers an excise tax on the shortfall.
Source: Internal Revenue Service, Retirement topics - Required minimum distributions (RMDs)
Every term on Lever is in the money glossary.
About this module
Limits, locks and deadlines is part of Investing, one of 15 subjects in Lever. It’s a short run of 6 lessons, about 15 minutes in all, so you can finish it in one sitting.
Every lesson takes one idea at a time. You read it with the math worked out step by step, answer a question that puts it to use, then see why the right answer is right and why the others aren’t.
It’s for anyone who was never taught this, and you don’t need to know anything first. Every lesson is free. Lever works out what you already know, so you can start here or let your path bring you to it.
More in Investing
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1
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2
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3
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4
Actually starting
Open the account, start small, invest a set amount on a schedule, and keep an eye on fees.
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5
The days you cannot pick
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6
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8
Moving it and naming it
What happens to your retirement account when you change jobs, and accounts meant for one specific purpose.
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9
Spending what you saved
How much you can take out each year in retirement without running out, and why the order of good and bad years matters.
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10
The mix that shifts
Choosing your mix of investments, rebalancing when it drifts, and all-in-one funds that do it for you.
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11
Choosing where it goes
Which account to fill first, which investments to keep where, and how to do it all if you work for yourself.
6 lessons
Try this module
It’s part of Investing. Lever will bring it to you when you’re ready, or you can go straight there.