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The IRS increased 401k contribution limits by $500—here's what that means for you

On Thursday, the IRS announced that 401(k) contribution limits will increase by $500. In 2018, employees who participate in the employer sponsored plan will be able to contribute as much as $18,500 per year, up from $18,000.

Contribution limits were last increased in 2015 when they went from $17,500 to $18,000.

Doesn't sound like a big deal? It is. That extra $500 could help you more than you may think.

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As personal finance site NerdWallet points out, it could mean up to $70,000 more in your retirement account.

The site calculated how much bigger your retirement fund would get if you started investing an additional $500 a year. It assumed a retirement age of 67 and a 6 percent annual rate of return.

To give you an idea of just how powerful compound interest is, NerdWallet also highlighted how much money you'd have if you didn't invest the $500 a year and simply kept it as cash:

If a 30-year-old starts investing an extra $500 a year, it could mean an extra $70,212 in retirement, versus $18,500 saved in cash.

If a 40-year-old starts investing an extra $500 a year, it could mean an extra $34,712 in retirement, versus $13,500 in cash.

If a 50-year-old starts investing an extra $500 a year, it could mean an extra $15,202 in retirement, versus $8,500 in cash.

Thanks to compound interest, just setting aside an extra $500 a year — or about $42 a month — can result in huge gains.

"For people who aren't contributing the maximum amount to their 401(k), the IRS announcement is still a useful reminder to try to push your contribution rate higher," NerdWallet's investing and retirement specialist Andrea Coombes tells CNBC Make It.

"Even if you're not saving that much, 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."

If you don't have a 401(k), there are other ways to put your money to work. Consider alternate retirement savings accounts, such as a Roth IRA, traditional IRA and/or a health savings account.

You can also research low-cost index funds, which Warren Buffett recommends, and online investment platforms known as robo-advisers.

And remember, when you start saving outweighs how much you can put away.

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