Newsletter 2014
Newsletter 2014
Retirement Savings
Retirement Savings
Print Full ArticleLast Reviewed: Jan 2015
Last Modified: Jan 2015
Many of our clients have had to forego or reduce their annual savings for retirement due to lower incomes. Hopefully, all of our economic health is rising with the tide as we ease out of the recession years and we should take this opportunity to ramp up our savings. There are many tools within our Tax Code that are designed to create savings incentives. These tools work for modest and low income households as well as those with high incomes. If you can participate in an employer sponsored 401K plan this is perhaps the best option of all. Not only do you get to deduct your contribution amount from taxable wages, but there is frequently a match from the employer (read … free money!). Your very highest retirement savings priority should be to max out your benefit under these plans.
Savings using the basic, traditional IRA works great too and is very easy to do. For 2014 and 2015 contribution amounts are $5,500 for those under age 50 and $6,500 for those above. In order to make an IRA contribution you have to have compensation (typically wages or self-employment income). Non-working spouses can use a working spouse's income to meet this requirement. For the self-employed there is a special form of IRA called a SEP which allows you to deduct up to 25% (about 20% effective rate after some complicated adjustments) of your net business income. For self-employed people experiencing a high income year there is an Owner 401K available that has perhaps the highest contributions of all the available options. There is an employee piece that maxes out at $17,500 for 2014 and $18,000 for 2015 (23,000 and $24,000 if you are 50 or older) and then there is an added profit share piece that is up to 25% of net business income.
There are deadlines for all these retirement savings tools. The traditional IRA account needs to be established and funded by April 15 with no extensions. The SEP IRA can be established and funded up until the timely filing of a return, including extensions. The owner 401K must be established before the end of the year you want to take the deduction for. The employee portion has to be funded by the 15th business day in January of the following year and the profit share portion is funded before the return is timely filed including extensions.
There are other tax-advantaged retirement vehicles available, but these are the tools our clients use the most.
