Contributions to retirement plans allow you to put some money away for the future while enjoying some tax benefits today. Any contributions made between January 1st, 2016 and April 15th of 2017 can count toward your 2016 contribution limit. The IRS released the 2016 contribution limits in October. How much you can put aside depends on the type of account:
Roth IRA contribution limits remain at $5500 per person. Those over the age of 50 can still contribute an extra $1000 per year to catch up on savings. If you are married filing jointly, you and your spouse can each contribute up to the limit in separate IRA accounts.
Traditional IRAs differ from Roth IRAs in that the contributions are made pre-tax instead of after taxes. They’re a good pick for those who will be in a lower tax bracket after retirement than they are now. Like the Roth, they have a $5500 per year contribution limit.
Simple IRAs allow small business owners a way to contribute toward their own and their employees’ retirement savings. Contributions come in the form of employee salary deductions and either matching or nonelective contributions from the employer. The limit is $12,500 per year. Those who are over 50 can also make catch up contributions of up to $3000.
Like the Simple IRA, these are set up through the workplace. The contribution limit for 2016 is $18,000. While employer contributions do not count toward your personal contribution limit, there is a $53,000 combined limit for employer and employee contributions. People over 50 who participate in a 401K can make catch-up contributions of up to $6000.
While you can have more than one type of retirement account, the contributions toward each can limit what you are eligible to contribute to the others. Talk to a financial advisor to direct your retirement money in the best way for you and your future.
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Your Guide to Financial Independence
Rick Epple, CFP(r)