When it comes to saving for retirement, there are multiple options available. Since the encouragement is to save as much as possible, as early as possible, here are a few of the saving options currently available. You will want to determine which options are right for your circumstances, but the most important point is to choose one and start making your contributions right away. Working with your tax professional or accountant, such as Patrick in Poughkeepsie, NY, you can determine what tax savings or benefits you can receive with each option as well.
Depending on your employer, you may have the option of using their 401(k) program. This provides several benefits. The first is that your contribution can be taken from each of your paychecks, thus making the saving aspect easier to do. Additionally, if your employer offers a matching plan, then your contribution is automatically being increased depending on how much the matching plan covers.
Essentially, that matching plan provides free money, which can grow with the rest of your principal overtime. However, if your employer does not offer a 401(k) or if you are self-employed, there are several other options available.
The IRA is an account that can be set up to allow you to make contributions throughout the year. For most IRAs, the contributions are tax deductible. However, with a ROTH IRA, your contributions will not be tax deductible. Instead, the distributions from a ROTH will be tax free. Depending on your income level, you may also have more savings options available, include an myRA.
The myRA is offered through the U.S. Treasury and allows you to get paid a set rate of interest. While the money is not invested as it would be in a traditional IRA, it is also guaranteed to grow with the interest payments. Once it reaches a set amount, then you can roll it over into a traditional IRA with investment options.
With the IRA, you can contribute up to $5,500 a year and the money will grow tax-free. However, once you start to take distributions from the account, you will have to make tax payments at that time. Also, if you withdraw funds from the account before you reach retirement age, you may have to pay a tax penalty for that disbursement.
You are also eligible to deduct your contributions from your taxable income. However, the deduction can be reduced if you have a 401(k) at work and an IRA. If there is no retirement plan at your job, then you will be able to take a full deduction regardless of your income level. The only exception is when you file jointly with a spouse that has a retirement plan in work.
If you have a high deductible health insurance plan, then you can save money by using a tax-free HSA. You can make contributions up to $3,350 a year for an individual or $6,650 for the family. For those older than 55, they can make an additional $1,000 contribution. The money can be used to cover qualified out-of-pocket expenses, such as copays or eyeglasses.
However, if you do not spend all the funds, then they will continue to roll over from year to year. When you reach 65, the funds can be withdrawn for any reason without penalty, but you will have to pay income taxes on your disbursement. This can make it an additional income source once you reach retirement and begin taking distributions.
Therefore, it is important to make decisions for retirement based on what your income level is and if you are self-employed or not. If you are self-employed, you can choose from a variety of IRS options to find the one that works best for you and your financial goals. Even if you start with a traditional IRA, you can roll it over to a Roth IRA at a later point in time to enjoy tax free disbursements later.
Working with your tax professional or accountant, you can determine what options will work best for your unique circumstances. The most important point is to start saving soon for your retirement, so that you can maximize the amount of funds available.
Click on the link below to contact a tax professional or accountant at the office of Tax Alternative Group, LLC in Poughkeepsie, NY, to discuss the retirement savings options available to you and how you can maximize your tax benefits for the current year.
Patrick O'Hara, EA