Saving For Retirement? Check Out 2015’s New Tax Laws.
Most of us have dreams of retirement, a time when (hopefully) you are empty nesters and can travel, build your dream home, spoil the grandchildren, buy a sweet sportscar to tool around in, etc. But guess what...that all takes money. According to Allen and Associates, Inc., your tax and bookkeeping experts in Smyrna, TN, 2015 is shaping up to be a great year to either continue saving or begin saving for your retirement thanks to a few new tax laws.
Job Related Contribution Plan Limits Have Gone Up...Does your employer offer a 401(k) or 403(b) that you can contribute to? Well, lucky you; new tax laws state that you can contribute up to $18,000 now. This is also true for most 457 plans and the federal government’s Thrift Savings Plan. In addition, if you are an employee who is 50 years old or more and haven’t contributed much in the past, the yearly “catch-up” contribution limit has been raised to $6,000, for a total limit of $24,000 to help you out.
Do You Contribute to an IRA? If so, based on whether or not you or your spouse is eligible to participate in an employer-sponsored retirement plan, tax deductions for contributing to a traditional IRA have been phased out. Here’s the deal, If you are able to contribute to an employer-sponsored plan and your modified adjusted income is between $61,000 and $71,000 for an individual or between $98,000 and $118,000 for a couple, your investment is not tax deductible. The same holds true for people who do not have a retirement plan at work, but their spouse does. The limits, however, are different. Your IRA investment is not tax deductible if your income is between $183,000 and $193,000. Other than that, contribution limits for 2015 have not changed; the limit it still $5,500 for those under 50 years old and there remains a $1,000 “catch-up” limit for those over 50.
Roth IRAs Income Limits Have Increased by $2,000. Income limits for contributing to your Roth IRA have changed to $116,000 - $131,000 for individuals and for married couples the new income limits are between $183,000 and $193,000. The contribution limit is $5,500 (with an additional $1,000 catch-up amount for those over 50). But remember, if you have both a traditional and a Roth IRA, that $5,500 or $6,500 is the maximum amount you may contribute across both accounts total, not each.
Rollovers Have Been Limited...For those investors who like rolling their funds over from one IRA to another, remember this new tax law...you are now limited to one rollover per year. That said, you can do more, but it will cost you dearly at a price of a 10% early withdrawal penalty and a 6% per year excess contributions tax for each year your rollover remains in that new IRA. Can we say, “Ouch!”? Kind of defeats the purpose of saving, doesn’t it?. Okay, there is a silver lining too though and here it is. According to the tax professionals at Allen and Associates, Inc., there are no yearly limits on transfers between a traditional and Roth IRA or transfers between trustee to trustee. These are examples of direct rollovers, which in effect, are rollovers that do not let you take control of the money, sort of like when you roll your 401(k) over to an IRA when you leave your place of employment.
Do You Have a Flex Account? Many employees have the benefit of contributing to a Health Flexible Spending Account (FSA). This allows you to set aside up to $2,550 (up $50 from last year) pre-taxed dollars from your paycheck to use for health expenses (eyeglasses, doctor trips, visits to the dentist, prescriptions, etc.). It is a great tool for saving money, and since 2013 you have been able to rollover up to $500 to the next year if you did not use it all. Here’s the change...if you have any pre-taxed dollars left over and you decide to carry it over to the next year, you will now be inelegible to sign up for a HSA (Health Savings Account). Note: This does not apply to FSAs that are designated for a specific purpose such as for dependent care. That said, Smyrna, Tennessee’s Allen and Associates, Inc. suggests that if you would like to participate in a Health Savings Account, you may want to rethink rolling over the leftover funds at the end of the year, even if it means losing them.
Wow, that’s a lot of new tax information to take in, isn’t it? No worries, the tax and bookkeeping experts at Allen and Associates, Inc. have your back. Actually, if you call today, they can set up an appointment for you to sit down with them and they will figure out what the best way to take advantage of these new tax laws would be for you. Bottom line is, you want to retire the way you picture it in your dreams and they are here to help you on the tax end of it. In the meantime, visit their website at www.aasmyrna.com and then up your 401(k) contributions to the new limit of $18,000 if you are abe to. Happy tax season Middle Tennessee :-)