Review your retirement plan contributions for the new year
You may have already heard the news: Many tax numbers that are adjusted annually for inflation did not change for 2016. For example, the 401(k) contribution limit remains at $18,000 this year, plus another $6,000 if you're celebrating your 50th birthday during 2016. SIMPLE plan contributions remain the same for 2016 also. You can save up to $12,500 in your SIMPLE account this year, plus another $3,000 if you're age 50 or over.
Though the limits haven't increased, taking full advantage of allowable contributions and any amounts your employer matches is still a good idea. Contributions you make to employer-sponsored retirement plans reduce your taxable income because your employer deducts the amount you specify from your paycheck before taxes. You might also be able to benefit from a savers credit of up to $2,000.
If you're already contributing the maximum, you may want to consider opening an individual retirement account this year. You can have both types of retirement plans, and a Roth or traditional IRA will help you diversify your retirement holdings and save additional tax-deferred or tax-free money. Just remember that your traditional IRA contribution may not be tax-deductible if you're eligible to participate in your employer's plan.
The maximum amount you can contribute to an IRA during 2016 is $5,500 (plus $1,000 when you're age 50 or older).
Give us a call for information about these and other tax-sheltered accounts that can offer significant breaks for 2016.
"Tax Tips" are published weekly to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office.
The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.