We all know that to have a good retirement, you must start saving early in life. Not only will saving for retirement help you financially for the future, but you can also help yourself this year as well. This week, let’s discuss the Retirement Savings programs that encourage taxpayers to save for the future.
You can boost your retirement savings even more this year, thanks to the higher limits on some of the most popular savings strategies. Stretch your budget to take maximum advantage of these new limits especially as studies show most of us save way too little. Here are some retirement savings plans that are available. You can defer (save) into your 401k. The deferral or savings also applies to Tax Sheltered Annuities (TSA’s) that are available to teachers, and some government workers. The deferral (savings) limit for Simple IRA’s is a different amount from the other plans this year.
Catch up contributions (the extra savings that allows taxpayers to save even more) for those of age 50 and over are available both for 401k’s and Simple IRA’s this year.
Both the limit of savings accounts and catch up amounts might change annually. You can find the amounts allowed at www.irs.gov
There is no change in the maximum IRA contribution for 2017. The limit for both Roth and Traditional IRAs are $5,500. Traditional catch up contributions allowed for those 50 and older remains at $1,000.
Here are some tips to maximize your retirement savings:
- Contribute enough to at least obtain your employer’s match in a 401K.
- Defer as much income as you can each month. Try to max out the upfront contribution giving you bigger take-home pay later on. If you reach the age of 50 during the year, remember to factor in your catch up contribution for that year as you will be allowed to make extra contributions.
- Contribute to an IRA as early in the year as possible to maximize savings.
- You might be entitled to a Retirement Savings Credit, if you contribute to a Retirement Savings Plan. Your tax preparer can help you with that determination. This could help you save as much as $1000 in taxes ($2000 if you are married).
- Be sure to contribute to some type of Retirement plan each year in order to plan for retirement. There are many types of plans, so be sure to speak to your tax professional to see which one or ones you are eligible for (401K, SEP-IRA, Simple-IRA, 403B (Tax Sheltered Annuity-TSA), 457 plan (Deferred Compensation plan), TSP plan (Thrift Savings Plan)).
Making IRA Contributions
If you made IRA contributions or you’re thinking of making them, you may have questions about IRAs and your taxes. Here are some important tips from the IRS about saving for retirement using an IRA.
- You must be under age 70 1/2 at the end of the tax year in order to contribute to a traditional IRA. There is no age limit to contribute to a Roth IRA.
- You must have taxable compensation to contribute to an IRA. This includes income from wages and salaries and net self-employment income. It also includes tips, commissions, bonuses and alimony. If you’re married and file a joint return, generally only one spouse needs to have compensation.
- You can contribute to an IRA at any time during the year. To count for 2017, you must make all contributions by the due date of your tax return. This does not include extensions. That means you usually must contribute by April 17, 2018. If you contribute between Jan. 1 and April 15, make sure your plan sponsor applies it to the right year.
- For example, the most you can contribute to your IRA for 2017 is the smaller of either your taxable compensation for the year or $5,500. If you were age 50 or older at the end of 2016, the maximum you can contribute increases to $6,500.
- You normally won’t pay income tax on funds in your traditional IRA until you start taking distributions from it. Qualified distributions from a Roth IRA are tax-free.
- You may be able to deduct some or all of your contributions to your traditional IRA. Use the worksheets in the Form 1040A or Form 1040 instructions to figure the amount that you can deduct. You may claim the deduction on either form. Unlike a traditional IRA, you can’t deduct contributions to a Roth IRA.
- If you contribute to an IRA you may also qualify for the Saver’s Credit. The credit can reduce your taxes up to $2,000 if you file a joint return. Use Form 8880, Credit for Qualified Retirement Savings Contributions, to claim the credit.
Here are some points to remember when trying to save for retirement, and maybe even reduce your taxes:
- 401K, 403B (TSA), 457 (Deferred Compensation), Thrift Savings Plans (TSP) contribution plans.
- Simple IRA and SEP IRA contribution plans.
- Catch up for Age 50 and older plans.
- Contribute enough to at least obtain your employer’s match. (This always gives you free money)
- Consider the Retirement Saver’s Credit. (Ask your preparer if you qualify for a saver’s credit to reduce your taxes)
- Find the Annual limits of the retirement savings accounts AND the Catch-Up amounts at www.irs.gov
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