Optimize Your Retirement Contributions in 2019
Do you know how to invest for tax savings?
Different investment vehicles have different tax benefits. For instance, Health Savings Accounts (HSAs) have a triple tax advantage – they are tax free when you add money to the account, make withdrawals and grow without taxes on interest. This article will teach you about how to maximize contribution limits under the new tax law. If you can contribute the maximum, you will realize more tax savings for your retirement.
401(k) Contribution Limit: $19,000
How they are taxed:
A 401(k) is not taxed when it is funded through payroll deductions, instead it is taxed when you withdraw the money.
Catch-Up Contribution Limit (50 years+): $6,000
IRA Contribution Limit: $6,000
How they are taxed:
IRA’s are taxed the same way as 401(k)s, with taxation upon withdrawal from your account.
Catch-Up Contribution Limit (50 years+): $1,000
ROTH IRA Contribution Limit: $6,000
How they are taxed:
When you contribute to a ROTH IRA, you are taxed at the present-day taxable value. When you withdraw the money, you are not taxed anything. These accounts prove advantageous, when you expect to be taxed more in the future. Under current tax law, tax benefits and contribution limits will not rise as quickly, leading to fewer tax breaks and more taxation. However, this could change as tax amendments are made every few years.
Catch-Up Contribution Limit (50 years+): $1,000
403(b) Contribution Limit: $19,000
How they are taxed:
You are not taxed when contributing to a 403(b) and you can deduct contributions from your federal income taxes. You pay taxes on withdrawals from the account.
Catch-Up Contribution Limit (50 years+): $6,000
457 Contribution Limit: $19,000
How they are taxed:
457 plans are also taxed upon withdrawal.
According to the IRS:
1. Catch-Up Contributions may be allowed for state and local government 457(b) plans for those 50 years and older.
2. Special 457(b) plans may allow catch-up contributions for 3 years prior to the normal retirement age (as specified in the plan).
Catch-Up Contributions for these plans are either:
– Twice the annual limit $38,000 in 2019, or
– The basic annual limit plus the amount of the basic limit not used in prior years (only allowed if not using age 50 or over catch-up contributions).
Please refer to your 457 plan to see if catch-up contributions are available and in what amounts.
SEP IRA Contribution Limit: $56,000
How they are taxed:
SEP IRAs are taxed like regular IRAs, upon withdrawal.
Catch-Up Contributions are not permitted for SEP plans.
SIMPLE IRA Contribution Limit: $13,000
How they are taxed:
SIMPLE IRAs are taxed like regular IRAs, upon withdrawal.
