Couples and Marriage

Rev Up Your Retirement Savings This Year

With the stock market under performing in recent years and interest rates at historic lows, many investors have seen their retirement nest eggs dwindle. That’s why it’s important to make retirement savings a priority.

Make the most of your 401(k)
If your company offers a 401(k) retirement savings plan, contribute the maximum. With a 401(k), your contributions are automatically deducted from your paycheck. Under a regular 401(k) plan, your contributions will reduce your current taxable earnings. 

You defer paying taxes on your plan contributions and earnings until you begin to make withdrawals, typically in retirement.  If there is a Roth 401(k) option available, strongly consider contributing under this plan. 

The contributions do not reduce your current taxable earnings; however, all qualified distributions from a Roth are tax-free.  Under many circumstances, this will be the better option.  A CPA can help you decide which choice is best for you.

Matching contributions from employers represent another significant benefit of 401(k) plans. Many employers match their employees’ contributions, which equates to getting free money from your employer.

Don’t overlook IRAs
If you've maximized your contribution to an employer-sponsored retirement plan, or if your company doesn't offer one, consider a traditional or Roth IRA.

Depending on your income, filing status, and whether you’re covered by another retirement plan, you may be able to deduct all or part of your contribution to a traditional IRA.

Contributions to a Roth IRA are never deductible but, if you meet the holding requirements, all future withdrawals of contributions and earnings are tax-free to you or your beneficiaries.

Be aware that, if your adjusted gross income (AGI) in 2016 is more than $117,000 on a single return or $184,000 on a joint return, your right to contribute to a Roth IRA is gradually phased out. Once your AGI reaches $132,000 (single) or $194,000 (joint), you may not contribute to a Roth IRA.

You have until April 15 to make a traditional or Roth IRA and make your contribution for the previous tax year. But by contributing to an IRA at the beginning of the tax year, you can accumulate tax-deferred (or in the case of a Roth IRA, tax-free) earnings much earlier and benefit the most from compounded earnings.

Choices for self-employed workers
Self-employed workers and small business owners have four basic choices for retirement plans: a simplified employee pension plan (SEP), a Keogh, a SIMPLE, or an individual 401(k). Each allows you to invest pre-tax money and each grows tax-deferred until the funds are withdrawn in retirement.

Individual Roth 401 (k) accounts and Roth IRAs can give tax-free growth for retirement funds. A CPA can help you determine the best plan for your business.

Monitor your retirement savings
Finally, keep in mind that ongoing management of your retirement portfolio is critical. Carefully review the performance of your investments and make any necessary adjustments. You’ll want to consider whether to change your asset allocations as you get closer to retirement. A CPA can provide valuable advice in implementing an effective retirement saving strategy.

Copyright 2006, The American Institute of Certified Public Accountants (updated 2014)