Top tax season retirement tips you might not know
Contributing to a 401(k) retirement plan comes with many benefits, so it’s no wonder that about 54 million American workers actively save in a 401(k) retirement plan. Across the nation, 401(k) accounts hold an estimated $5.3 trillion dollars in assets, and that number just keeps getting bigger .
With so many people committed to saving for retirement, it’s no secret that there are certain tax advantages for contributing to a retirement account. But keep in mind, some of these benefits are obvious while others are not. To help maximize your benefits, take advantage of these not-so-well-known tips!
How to maximize 401(k) plan tax benefits
· Take advantage of the Saver’s Credit
The Saver’s Credit, also known as the Retirement Savings Contributions Credit, makes credits available to lower income individuals and households that contribute to qualified retirement savings plans—like a 401(k). The amount of credit depends on the adjusted gross income and the size of the contribution, but who doesn’t like getting essentially free money?
· Be aware of changing contribution limits
Contribution limits for 401(k) plans are reviewed every year and are adjusted annually to keep the maximum contribution level on pace with inflation rates. The limits are calculated using formulas based on Cost of Living Allowance Adjustment (COLA), so if you’re aiming to max out your 401(k) each year, make sure you’re aware of exactly how much you can contribute.
· Utilize catch-up contributions
If your 401(k) plan allows—and most do—and you’ll be over the age of 50 by the end of the calendar year, you are permitted to make “catch-up” contributions to your 401(k) plan, over and above the maximum regular contributions. You’re eligible to add an extra $6,000 to your 401(k) account in catch-up contributions, and the funds are not subject to the annual limits that generally apply to 401(k) plans.
Saving with a 401(k) plan makes a lot of sense if you’re looking to grow your retirement savings account tax-free until it’s time to begin withdrawing funds. Throughout the various stages of planning for retirement, there are a variety of benefits offered by 401(k) retirement savings programs that you can, and should, take advantage of. Tax breaks, the option for employer matching contributions, and high contribution limits allow savers to grow their retirement nest eggs—ultimately putting them farther along on the path to retirement readiness.
John Nahacky, JD, CPC - Compliance Manager - firstname.lastname@example.org – 800.236.7400 Ext. 3250
John is the subject matter expert on 401(k) rules, regulations, compliance, plan design, and year end requirements.