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Year End Tax Strategies Pt. 3: Retirement

(posted: December 14th, 2015)

Happy retired couple on a beach
As you end the year and start to think about tax season ahead, we've got some tips and ideas for all you planners out there.

In this third post in our year end tax series, we're looking at several retirement plan strategies that could reduce your tax burden, depending on your situation.

People don't always remember to pay themselves first, so we find ourselves repeating this first one a lot:

Contribute to Your Employeer-provided Retirement Plan
At the very least, make sure you are saving up to the amount your employer will match--why leave free money on the table? If you're 50 or older, make a catch-up contribution. If you expect to be in a higher tax bracket down the road (say, if you're a younger worker who has yet to reach peak earning years) and your employer offers the Roth 401(k), consider it. You won't get any up-front tax benefits, but after you retire, qualified distributions will be tax-free.

2015 federal limits for retirement accounts:

401(k), 403(b) and 457

  • Contribution Limit: $18,000
  • Catch-up Contribution: $6,000

SIMPLE IRA

  • Contribution Limit: $12,500
  • Catch-up Contribution: $3,000

Individual 401(k)

  • Contribution Limit: 20% of net self-employment income (or 25% of compensation) plus $18,000, up to $53,000
  • Catch-up Contribution: $6,000

Traditional IRA and Roth IRA

  • Contribution Limit: $5,500
  • Catch-up Contribution: $1,000

Self-Employed?
Consider a small business retirement account such as a SEP-IRA, SIMPLE IRA, Individual 401(k) or other qualified retirement plan. Contributions are tax-deductible and grow tax-deferred. If you open a qualified retirement account by December 31, you have until the day you file next year, including extensions, to make this year's contribution.

Make An IRA Contribution
Although you have until next April 15 to make your 2015 contribution, early contributions will give your money more time to benefit from potential long-term compound growth. So consider making your 2015 and your 2016 contribution early next year. If you're eligible, a Roth IRA might be a good option as well, especially if you're not eligible for a deductible traditional IRA contribution.

Retired?
If you are 70 1/2 or older and have required minimum distributions (RMDs) from your retirement accounts, do it before the end of the year. If you just turned 70 1/2 this year, you can wait until April 1, 2016 to take your first RMD. However, if you wait until next year to start, you will have two distributions in the same year, which might bump you into a higher marginal tax bracket.

This post is part of our series on steps you can take at the end of the year to make tax time easier. The Year End Tax Strategies series includes:

As always, if you need help or wonder if any of these strategies is right for you, please Contact Us!

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