RMR Wealth Management Blog

How Not to Leave Your 401(k) Money On The Table: New Year's Tips - posted by Brian Mayer, RMR Wealth Management, LLC

RMR Wealth Management - Tuesday, January 06, 2015

(originally written by John Wasik)

 

Although I think that 401(k)s are flawed vehicles, for most Americans they are the only long-term savings vehicle they have.

It’s far too easy to leave money on the table in these plans. Here’s what you should be thinking about as the year begins:

* Contribute As Much As You Can. Remember that you can leave money on the table two ways: The most important is failing to take advantage of a company match. So grab the free money.

The second mistake is not taking advantage of tax savings. Remember you don’t pay federal taxes on the money you contribute to your 401(k). It reduces your federal liability.

You can contribute up to $18,000.

* Don’t Leave Your “over 50″ Bonus on the Table. Age has its benefits. If you’re 50 or older, you can chip in another $5,500 into your 401(k) this year.

* Watch out for minimum distributions. If you’re 70 1/2 or older, the IRS makes you take “required minimum” distributions out of your IRA. If you don’t take the money out, you could face a 50-percent penalty.

* Don’t Forget Your IRA. The limit is $5,500 for individual retirement accounts with another $1,000 as a “catch-up” contribution for those over 50. Deductions for these contributions, however, get a tad tricky. This is how US News explains it:

“Workers who have a retirement account at work can claim a tax deduction for making a traditional IRA contribution until their modified adjusted gross income is between $61,000 and $71,000 for individuals and $98,000 to $118,000 for couples in 2015, up $1,000 and $2,000, respectively, from 2014.

Spouses without a workplace retirement plan who are married to someone with a 401(k) can claim the IRA contribution tax deduction until their income is between $183,000 and $193,000 in 2015. “

* You May Qualify for a Saver’s Credit. If you’re within a certain income range, the government will give you a tax break for saving. It’s called the “saver’s credit.”

“Workers who save in a 401(k) or IRA may be eligible for the saver’s credit if their adjusted gross income (after deductions) is less than $30,500 for singles, $45,750 for heads of household and $61,000 for married couples in 2015.

These limits are between $500 and $1,000 higher than in 2014. This valuable tax credit is worth 50 percent, 20 percent or 10 percent of your 401(k) or IRA contributions up to $2,000 ($4,000 for couples), with the biggest credit going to savers with the lowest incomes. The maximum possible saver’s credit is worth $1,000 for individuals and $2,000 for couples.”

Don’t wait until the end of the year to make savings decisions. Make it part of your planning today.


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