Your Financial Future / Are You Preparing For Your Retirement?

Most of you are getting ready to file your 2015 taxes. Have you taken advantage of the opportunities the government and potentially your boss gives you to save for retirement?  Uncle Sam allows you to receive an up-front tax benefit through tax deferred or even tax-free savings.  And, you may be eligible for an employer-matching savings account.

If we assume that you are in a 28% federal tax bracket, your contributions to an IRA, 403(b) or 401(k) plan will only cost you 72 cents for every dollar invested. It costs you much less to save for retirement when the government pays a portion of the expense!

Of course, if your employer is making a matching contribution, so much the better. Plans match 25 cents, 50 cents or even match you dollar for dollar up to a certain limit. How could you turn those funds down? It is a guaranteed win for you so you should at least contribute up to the maximum that will be matched otherwise you are literally throwing $$$ away!

I was the investment advisor to a biotech company in Boston where the CEO asked to borrow a $20 bill from an employee in one of my 401(k) education sessions. He explained the company match. He proceeded to pull a lighter from his pocket and burn the bill as he told the group they would be losing free money if they didn’t contribute up to the company match. He certainly got their attention!

Of course, I recommend that you don’t limit your contributions to meet the match; you should save as much as possible to receive the long-term benefits of the tax-deferral provided in a traditional IRA, SEP IRA, SIMPLE IRA, 403(b), 457 plan.

Folks, Congress understands that most Americans have not saved enough for retirement, especially as individuals are living longer. Consider that if you retire at age 65, you may need to live off of your assets for 25 or 30 years. So, they have a provision that allows individuals over age 50 to save more.  In 2015 and 2016, individuals over age 50 may contribute an additional $1,000 to an IRA or Roth IRA with maximum of $6,500; $6,000 more to a 401(k) plan with a maximum of $24,000 or $3,000 more to a SIMPLE IRA with a maximum contribution of $15,500.

Lots of people have one or more jobs today. You may save in more than one form of plan; employer and self-employed contributions may be combined as long as they do exceed the maximum limit. And, you may make IRA contributions for a non-working spouse. For those that can afford it, maximizing contributions to one or more plans can allow them to catch up on their retirement savings.

If you receive a tax deduction for your contributions, upon retirement or reaching age 70.5 years of age, you will pay ordinary income taxes on your distributions. You have the advantage of compounding your money on a tax-deferred basis …this is a huge advantage to the growth of your funds.

If you happen to be in a low tax bracket, or simply want to diversify the tax implications of withdrawals in retirement, you may choose to garner tax-free income by contributing to Roth IRA. You won’t receive the tax deductibility on your contributions offered in the other plans but you won’t pay taxes as you use the funds.  In addition, there is no obligation to starting taking withdrawals, called required minimum distributions, at age 70.5 years from a Roth. The funds may continue to grow tax-free. Some 401(k) plans offer a Roth feature in addition to the tax-deductible feature.

Take a good look at your options, and prepare to have a comfortable retirement today!

Roxanne E. Fleszar, CFP, ChFC is President of Financial Resources Management Corp, a registered investment advisory firm with offices in Key West, Boston and Naples.

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