August 14, 2018
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2017 Isn’t Over Yet

Jason LaBarge
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April 3, 2018

According to Forbes, only one in three Americans has saved money for retirement. Over the next 20 years, 10,000 baby boomers will turn 65 every day. If only one in three have saved anything, only 3,333 of those 10,000 people have saved for their retirement.

That’s alarming, especially since the IRS has several plans available for stashing money. Did you know that the deadline for 2017 contributions is right around the corner? You have until April 15 to contribute for 2017. Here are a few plans and the amounts you can contribute.

The first plan is your traditional 401k at work. Most employers offer this as a benefit for working for their company. In fact, 42 percent of employers offer a dollar-for-dollar match to employee 401k contribution, meaning if you are contributing 5 percent of your pay into your 401k, your employer is contributing an additional 5 percent to that account. If you work for an employer who matches your 401k contribution, you need to enroll in that program, stat. Go into work tomorrow and enroll; that’s free money.

Retirement plans outside of your employer are called individual retirement plans or IRAs. The IRS introduced these plans with the Employee Retirement Income Security Act of 1974, or ERISA, and they have steadily grown in popularity over the years. As a way to incentivize retirement savings, the IRS allows individuals to contribute $5,500 per year into this account and deduct that from their annual income on their tax returns.

If you are over the age of 50, you can contribute a “catch up” amount and contribute a total of $6,500. The deadline for each year’s contribution is April 15, the tax year deadline. To contribute to an IRA, you must have “earned income.” The IRS does, on the other hand, allow for a “spousal IRA” contribution where a non-working spouse can contribute to his or her own IRA as long as the other spouse has earned income.

The next retirement account available to you is the Roth IRA. It carries the same contribution guidelines of $5,500 for those under age 50 and $6,500 for those over age 50. The value of the Roth IRA is that gains are tax-free when the money is withdrawn, provided the account has been open for five years and you’re over 59.5 years old. To contrast, when you withdraw money from a traditional IRA, the amount is fully taxable at income tax rates. While you do not get the immediate tax deduction for the contribution as you do with the traditional IRA contribution, the withdrawn money is fully taxable. This is incredibly valuable. When you plan for retirement, it is a good idea to know what the tax implications will be with each scenario, because it’s hard to know what the income tax rates will be in the future.

Some of these plans have income restrictions. In other words, some of you who are reading this make too much money to contribute to some of these accounts. For example, if you make over $200,000 in 2018, you are ineligible to contribute to a Roth IRA.

Determining your best option can be difficult. Should you open a traditional IRA or a Roth? Should you contribute the max? If not, what amount should I contribute? These are questions that can be answered by a CPA or other financial professional. Generally speaking, I always suggest contributing the maximum amount you can. And remember, 2017 isn’t over yet; you can still contribute toward your 2017 maximum limits until April 15, 2018.

If you have any other questions regarding any of these retirement savings account options or if you’d like a referral to a CPA in our area, don’t hesitate to reach out.

Jason LaBarge is a managing partner at Premier Planning Group in Annapolis. For more information, call him at 443-837-2520. Opinions expressed are that of the author and are not endorsed by the named broker dealer or its affiliates. The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional adviser.


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