Anyone who’s engaged in contributing to a retirement account already knows that they allow you to take advantage of several excellent tax breaks as well as, in many cases, employer matching programs that add to your “nest egg”. In order to take full advantage of these tax breaks, and the considerable amount of money that they allow you to earn, we’ve put together a number of excellent tips and a good bit of advice to follow in 2014. Enjoy.
Using the federal government’s Thrift Savings Plan the average worker can put $17,500 into their 401(k) or 403(b) in 2014. If you’re keen on maxing out these two plans you need to put in $1450 a month for the next 12 months. If you’re able to put the maximum in this year you’ll actually save nearly $4400 in federal income taxes and thus a good recommendation is to max out these plans as best as you can.
For workers who are 50 years old or older the contribution level goes up to $23,000 which means that you’ll need to put in $1917 per month in 2014, something that will allow you to save $5750 in taxes. If you are an above average earner these tax savings can be even higher this year.
Of course if your employer has a matching program you would be wise to put in as much as you can into your retirement accounts and take as much advantage of this program as possible. For example, if your company matches $.50 for every dollar that you put in your retirement account and you save the maximum, you’d be looking at nearly $9000 in extra retirement funds by the end of the year.
The maximum amount of money you can put into an IRA in 2014 is $5500 or, if you are 50 years old or older, $6500. If you wanted to put as much as possible into this account in 2014 you’ll need to put in either form and $50 a month or $542 a month respectively. One of the good things about IRAs is that, unlike 401(k) contributions, you can make them right up until the deadline for filing your taxes, something that can allow you to get an immediate savings on your return.
There’s also an extra tax perk for low and moderate income workers who want to save extra for their retirement. It’s called the Saver’s Credit and, for couples with a gross income of $60,000 or less, or individuals with $30,000 or less, it can be worth up to $2000 or $1000 respectively. Low and moderate income workers who save money in a 401(k) or IRA is eligible to claim this extra credit on their tax return in 2014.
Most investors know that a lot of investments come with high fees that can wipe out a good portion of their interest or tax break money and that’s why it pays to look for low-cost investments. If you’re keen on keeping as much money in your IRA, 401(k) or other retirement account as possible, look for investments that have the lowest possible fees. Talking to your financial advisor about this is your best bet.
Another great retirement vehicle is the TD pre-authorize purchase plan which allows you to automate your retirement savings. While these accounts aren’t retirement specific, they are great for increasing your retirement contributions without feeling the sting of putting extra money away. It’s a set and forget approach that allows the bank to directly allocate part of your deposits to your chosen savings accounts.
2014 is just getting started but the good news is that you have plenty of time to start putting as much money as possible into all of your retirement accounts. If you have any questions about retirement planning or personal finance questions in general, please let us know and will be sure to get back to you ASAP with answers and advice.