Investing the maximum allowable contribution per year to a retirement account is a great way to reduce your taxable income. Below, are several types of accounts that are available to taxpayers.
Traditional 401(k) Plans
401(k) plans are a common way for businesses to help employees save for retirement. Traditional 401(k) contributions are not considered taxable income, so investing in a 401(k) is a great way to invest in your retirement while also cutting your taxable income for the year. Amounts invested in this type of account are not taxed until they are distributed.
If your employer matches your 401(k) contributions, you may want to consider investing the maximum amount allowed for 2017, which is $18,000 for those under the age of 50 and $24,000 for those 50 and over. Keep in mind, these amounts are per individual. There is no such thing as a spousal 401(k).
Roth 401(k) Plans
If your employer allows you to put some or all of your 401(k) contribution in a Roth 401(k) account, you may want to consider doing so. Although there is no tax deferral with this type of contribution, it does grow tax free. Generally, distributions from a Roth 401(k) plan are not taxed. The contribution limits for a Roth 401(k) are the same as the limits for a traditional 401(k).
Traditional IRA Plans
Contributions made to a traditional IRA may be fully or partially deductible. Generally, amounts in your traditional IRA, including earnings and gains, are not taxed until distributed. If you’d like to potentially reduce your taxable income through this type of account, the contribution limits for 2017 are $5,500 if you are under age 50 and $6,500 if you are age 50 or older.
Roth IRA Plans
A Roth IRA is an IRA that is mostly subject to the same rules that apply to a traditional IRA. The main difference is that you cannot deduct contributions to a Roth IRA. The same yearly contribution limit applies to all of your Roth and traditional IRAs, but note that your Roth IRA contribution might be limited based on your filing status and income. The contribution limits for a Roth IRA account for 2017 are the same as the limits for a traditional IRA.
If you need help determining which account is right for you, call our office to make an appointment.