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Written by: James Bell
As we get closer to April 15, tax day in the United States, this may be a helpful reminder: you are still eligible to make certain retirement account contributions for last year (2014) even if you missed the December 31, 2014 date. Making contributions to your retirement accounts is a good way to strengthen your financial and retirement plan. Follow these tips to keep your retirement on track.
1. Did you max out contributions to your employer-sponsored retirement account in 2014? Will you do so again in 2015? If so, think IRA contribution!
If you have maxed out your employer-sponsored retirement account salary deferral last year and are likely to do so in 2015 (2015 max: $24,000 with catch-up), pat yourself on the back: Good job! Then consider making a contribution to an IRA (Individual Retirement Account) or Roth IRA for tax year 2014. There is still time to make this contribution for last year right up until the tax filing deadline date of April 15. If eligible, you are allowed to contribute up to $5,500 to either an IRA or Roth IRA (but not both) plus $1,000 catch-up for those 50 or older.
❯ Note: Eligibility to contribute to any type of IRA is dependent on having earned income in the contribution year, and you may be subject to income phase out rules, so please check with your tax advisor regarding eligibility rules, income limits, and deductibility rules.
2. If age 50 or older, take advantage of catch-up contributions.
If you are age 50 or older, you are allowed to make additional (known as “catch-up”) contributions to your employer-sponsored retirement plan [401(k), 403(b), 457, or TSP] and/or to a traditional IRA or Roth IRA.
For employer-sponsored retirement accounts:
For IRA or Roth IRA, for both 2014 and 2015, you can contribute a catch-up amount of $1,000 for a maximum contribution of $6,500 annually.
3. Are you self-employed and have a retirement plan already established for your small business?
If you are self-employed, you have the right to contribute part of your income to a self-employed retirement savings plan like a SEP IRA (Simplified Employee Pension); a solo 401(k), i.e. a (i401k); or SIMPLE IRA (Savings Incentive Match Plan for Employees). Setting one up, or maxing out your contribution for the current year if you have one, is an excellent way for those self-employed to shelter income.
You still have time as the employer to make your 2014 employer contribution to the plan. Be sure to check with your tax advisor for the exact amount you are able to contribute, but remember: sheltering taxable income decreases your taxable income for the year, which in turn builds up the strength of your retirement plan.
❯ Note: Check out the IRS website for IRA Contribution Limits.
http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-IRA-Contribution-Limits
In summary, if you are wondering how to prioritize your retirement savings, we generally recommend maxing out your employer-sponsored retirement account first before funding a traditional or Roth IRA. Focusing on your employer-sponsored retirement account is especially important if your employer matches a percentage of your contributions—so you do not miss out on that free money. If your employer does not offer a plan and you are not self-employed, then an IRA (traditional or Roth) can be a great place for retirement contributions. Please remember, you should discuss your own situation with your financial advisor or tax expert before making any major financial decisions.
Be kind to yourself, and help your retirement plan by making retirement account contributions for 2014 before it’s too late!