By Gary Meeks, RICP®
Two topics; taxes and retirement. No one likes paying taxes! On the other hand, most look forward to retirement. Contributing to a retirement plan can grow your nest egg and reduce your taxes! A win on both items!
This is tax season. Most of us have recently completed our tax returns or are working on them now. Contributing to a retirement plan like a Traditional IRA or your employer’s retirement plan reduces your taxable income by the amount you contribute. Contributing to a Roth IRA will provide tax benefits later when you make qualified Roth IRA withdrawals—you pay no tax on those withdrawals.
There is still time to make IRA contributions and get your tax deduction for 2018. If you own a small business and need a tax deduction, a SEP IRA may be appropriate for you. If you’re not contributing to your employer’s retirement plan, maybe you should consider doing so to reduce your taxable income and build your nest egg. Employer matching contributions are tax deductible for the business.
The following is helpful information about various retirement plans and their contribution limits:
401(k), 403(b), and 457:
My personal favorite. In 2019, you can contribute up $19,000. If your 50 or older, you can contribute up to $25,000. An added bonus: your employer likely matches a percentage of your contributions—that’s free money! Employer contributions are tax deductible for the employer. Many 401(k) plans allow for Roth Account contributions with the same limits as traditional 401(k) contributions and no income limit for eligibility.
Traditional & Roth IRAs:
If you have earned income but your employer doesn’t offer a 401(k), you can contribute to a Traditional or Roth IRA. Contribution limits are $5,500 under age 50 and $6,500 at age 50 or older for tax year 2018. You have until the income tax filing deadline to make contributions for 2018. For the year 2019, contribution limits for both the Traditional and Roth IRA is $6,000 under age 50 and $7,000 age 50 or older.
SIMPLE Retirement Plan:
The SIMPLE plan is usually established by a small employer. The contribution limits for participants is $13,000 under age 50 and $16,000 age 50 and older for 2019. The employer makes matching contributions of up to 3% of employee W2 wages. As the name implies, the SIMPLE plan is relatively easy to establish and maintain for the employer.
The SEP Plan:
Often established by the self employed or small employer, the SEP allows for employer only contributions. The contribution limit for 2018 is 25% of compensation with a limit of $55,000 and for 2019, 25% of compensation with a limit of $56,000. If you’re a small employer or self employed and need a tax deduction, you still have time to establish and contribute to a SEP plan for tax year 2018. The deadline is the tax filing deadline.
The above are the most common types of retirement savings plans. Eligibility or income limits may apply. Seek competent tax or financial advice to learn how you could potentially benefit from contributing to or participating in any of the plans referenced above. If you’re an employer, an employer sponsored retirement plan may benefit your business, reduce taxes, and attract and keep quality employees.
Gary D. Meeks, RICP®, is a registered representative offering securities and advisory services through Cetera Advisor Networks LLC, member FINRA/SIPC, a broker dealer and Registered Investment Adviser. Cetera is under separate ownership from any other named entity. 90 W 100 N STE 6, Price, UT 84501 (435)-637-8160.
The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. Investors can not invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing.