As the calendar turns to the New Year, our thoughts begin to focus on the upcoming tax season. It may not be too late to make contributions for 2016, or you can begin to plan for this year.
One of the more popular ways to achieve a tax deduction is to contribute to an IRA. The contribution limits have not changed since the previous tax year, and contributions can be made prior to your tax filing deadline which is typically April 15, but will be April 17 this year.
Annual contribution limits are as follows:
Roth and Traditional IRA = $5,500
Catch-up contributions (if over age 50) = $1,000
Simple IRA = $12,500
Catch-up contribution (if over age 50) = $3,000
401(k) and 403(b) = $18,000
Catch-up contribution (if over age 50) = $6,000
SEP contribution and Owner 401(k) = up to 25% of compensation, limit = $53,000
Small businesses can now operate a SIMPLE IRA for the current year. A SIMPLE IRA may be appropriate for a small employer (less than 100 employees) who wants a low-cost plan that allows for salary deferrals, with minimal administration, and no IRS filing requirements.
While there are options, each plan has a unique benefit and should be considered for your needs. IRA’s are a long term plan and should be considered as such when making choices. Current economic climate conditions can be distractions to long term plans and should be filtered for your needs.
If after tax contributions are desired, then a Roth IRA should be considered, and it is worth inquiring if Roth contributions are available in a company or individual 401k plan. It is also prudent to consider a Roth conversion in some cases.
It is wise to consult with a qualified tax professional as well when considering your individual tax consequences and needs. While taxes can become an unpleasant topic for some, a little planning can go a long way. Here’s to best wishes for the coming year.
Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. Any opinions are those of Scott Smith and not necessarily those of RJFS or Raymond James.