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Don’t Forget to Leverage Retirement Savings Each Year

  • 9 January 2017
  • Author: Alexander Carr
  • Number of views: 5020
Don’t Forget to Leverage Retirement Savings Each Year

Happy New Year! Chances are you didn’t get as much accomplished at the end of 2016 as you had hoped. If one of those unchecked items on your to-do list is to maximize your tax savings, you’re still in luck when it comes to your individual retirement account (IRA).

One of the many benefits of contributing to an IRA for retirement savings is that those contributions can be made and claimed after that calendar year has ended. According to the IRS, you can make 2016 IRA contributions until April 17, 2017 (when individual income tax is due).

If you’re like most Americans, you may not realize the need to maximize your retirement savings each year. In fact, 45 percent of Americans have saved nothing for retirement, including 40 percent of Baby Boomers. But consider this: The average retirement lasts 18 years and many last much longer. In order to draw $5,000 per month for 30 years from your retirement account, you'll need over $1,000,000 in savings.

So, if you feel you can contribute more for 2016--do it!

As with all good things, there is a limit, though. Current IRS rules indicate total contributions to all of your traditional and Roth IRAs cannot exceed the lesser of $5,500 ($6,500 if you’re age 50 or older), or your taxable compensation for the year. Excess amounts may be withdrawn by the due date of your tax return (including extensions). If you don’t withdraw excess contributions by that time, you’ll incur a 6 percent excise tax each year on the excess. 

Those who have traditional IRAs and are older than 70½ in 2016 must have taken a required minimum distribution by December 31, 2016. But, if you turned 70½ in 2016, you still have time: Your minimum distribution must be taken by April 1, 2017. The amount required depends on your age and can be determined by following this IRS worksheet. If you fail to take the distribution, you face a 50 percent excise tax on the required minimum distribution amount. Roth IRAs are an exception to this rule. You can make contributions to your Roth IRA after you reach age 70½ and there is no distribution requirement.

So take a moment to decide whether it’s wise to turn back time, at least when it comes to your IRAs. Have you reached your maximum contribution and, if not, do you have the money to contribute more? Or have you taken the required distribution in order to avoid unnecessary taxes? If you have any other questions about retirement savings tax strategies or need help deciding what to do, contact us.

Image Copyright: feverpitched / 123RF Stock Photo
Categories: Blog, General
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