Max-Out Your Retirement Funds Before Dec. 31
It’s October now…and life is going to start moving awfully quickly in the coming weeks. The winter holiday season is going to start swirling around us – and it will be a candy cane-colored blur before we all come-to on January 2nd.
And while you are thinking about your holiday cocktails – both the dress and the drink varieties – you really need to be consider your 2016 retirement contributions before the clock strikes midnight on December 31.
I highly suggest you MAXING OUT your retirement contributions for 2016 while also starting to plan your commitments for 2017. Here are some guidelines to follow depending on what kind of savings vehicle you use.
For Your 401K
You can contribute up to $18,000 to your 401K if you are under 50 years of age. If you are over 50, you can contribute and extra $6,000 for a total of $24,000 of contributions.
Why is this important? Your 401K contribution is tax deductible. Also, many employers may match at least some of your 401K contribution. I cannot stress this enough. This is free money that your employer is offering you. It would be a shame to leave it on the table, so contribute as much as you can so as to at least max out your employers’ contribution too.
For Your SEP
If you are self employed, you can route your contributions through a SEP plan. (A Simplified Employee Pension plan). This is similar to an IRA and is subject to the same investment, distribution, and roll-over rules as an IRA. You can contribute up to the lesser of 25% of compensation, or $53,000. (In 2017 the max is 54,000.)
For Your IRA
IF you’re investing in an IRA, the 2016 max is $5,500. If you’re 50 years of age or over, you can contribute even a little more – $6,500 in total – as a catch up provision. IRA contributions are also tax deductible for the year 2016. However, deductions may be limited or even disallowed if you (or if you are married, your spouse) are covered by a retirement plan at work. A full deduction is allowed if you are single and making less than $61,000 a year. Those who are married and filing jointly need to have a combined income of less than $98,000 per year. Above these limits, the allowable deduction is partial, or phased out ($71,000 or more for singles or $118,000 or more for married filing jointly would have deductions disallowed)
For Your Roth IRA
Roth IRAs follow the same contribution rules BUT they are not tax deductible now. (In other words, you’ll pay tax on that money now, but you will not pay any taxes when you withdraw the money at retirement.) * . A full contribution is allowed if you are single and making less than $117,000 a year. Those who are married and filing jointly need to have a combined income of less than $184,000 per year. After these limits, the allowable contribution is phased out. The contribution levels for 2016 are the same as an traditional IRA. Here’s the beauty of a Roth IRA, you can make your own contributions while also making a contributions to an employer retirement plan.
*Withdrawals from the account may be tax free, as long as they are considered qualified. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax.
If you’re so good that you’re starting to plan your 2017 contributions (good for you, girl!) then please note that both IRA and Roth IRA contribution limits are indexed for inflation and will be published by late October, 2016.
This information is not intended to be a substitute for specific individualized tax advice. Tax laws and provisions are subject to change. We suggest that you discuss your specific tax issues with a qualified tax advisor