Tuesday, October 22, 2013
“This is the end, my only friend, the end.”
“The End” – The Doors
Ok, it’s not the Apocalypse – that was last week with the Shutdown Showdown in WA D.C.
Seriously, it’s that time of year when steps you take before the end of the year can make a difference when you file your 2013 income tax return.
Have you fully funded your 401k for the year yet? The contribution limit for 2013 is $17,500 and if you are age 50 or over you can add another $5,500 for a calendar year total of $23,000. If you are contributing at an amount that will not hit either of these totals by December 31, you still have about four paydays – five if you get a separate bonus – to increase your contributions.
For W-2 employees, contributions to a 401k plan are done on a calendar year basis – once the year is up there’s no going back.
The annual contribution limits apply whether your 401k is pre-tax or post-tax (Roth) or a combination. Tip: if you have a Roth option, split your contribution between pre-tax and post tax. The current tax savings on the pre-tax contribution will offset the taxes you pay to make the post-tax contribution (for the most part). After retirement, the Roth contributions and related earnings come out of the plan tax free (see earlier blog post “To Roth or not to Roth”).
You can easily check your progress: your paycheck remittance advice (commonly referred to as your “paystub) should have your YTD 401k contributions listed.