By Rick Fisher
Welcome to 2018, the New Year, and the resolutions that come with it.
Unlike many resolutions that require consistent motivation and effort, financial resolutions may only require an initial commitment and a phone call. The commitment is to start, increase and possibly maximize your retirement plan contributions. For those fortunate enough to have an employer-sponsored retirement plan such as a 401(k) or Simple IRA plan, the solution is simple. Contact your employer and inquire how you can start contributing or increase your current contribution.
For 2018, the 401(k) limits increase to $18,500 for those under 50 years old and $21,500 for those 50 and older. For those covered by a Simple IRA plan, the limits remain at $12,500 for those under 50 years old and $15,500 for those 50 and older. It is important that we take advantage of these opportunities, and pursue the secure retirement we are working for. For those who are self-employed and do not have a plan in place, the phone call should be to a financial advisor. A qualified professional can help you craft a retirement plan specific to your needs and goals.
The two main types of plans for self-employed individuals with no employees are Simplified Employee Pension IRAs and Solo or Uni 401(k). For 2018 the maximum contribution to a Simplified Employee Pension IRA is 20 to 25 percent of Schedule C income, depending on the business structure.
Consult your tax advisor for your personal limit. This is usually funded after your taxes have been calculated. If you are looking for a way to save on a monthly contribution basis than a 401(k) type plan may be best for you. These plans have the same deferral and overall contribution limits of a standard 401(k) plan, for a fraction of the cost. Although they may be more expensive than Simplified Employee Pension IRA plans, the costs could likely will be outweighed by the higher contribution limits. It is important to discuss your options and goals with both your tax and financial advisor, before moving forward with any plan.
With these types of retirement contribution plans you may pursue two goals. First, a reduction of your taxable income; the amount you contribute is not included in your income for the year. Second, you address the pressing need to save for your own retirement.
If you are fortunate enough to maximize your contribution to these plans and want to save even more in tax-deferred accounts, you might be able to make additional traditional or Roth IRA contributions. The amounts for 2018 are the same for 2017, however, they have increased the income limits for those who can make Roth IRA contributions. Consult with your tax advisor for details.
There is no better time to start than the New Year, to start fresh and address your retirement goals. The commitment and sacrifice you make now will better prepare you for your golden years. Guided by proper financial management your savings can grow in a tax-deferred basis, available to you as income in retirement.
Don't delay. Start 2018 with the most important New Year's resolution you will ever keep to pursue the fruits later in retirement.
Frederick Fisher is a Certified Financial Planner Practitioner, and Insurance Agent with Ostrofe Financial Consultants, Inc., with clients in 31 states. He is a Registered Representative with, and Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Ostrofe Financial Consultants, Inc., a Registered Investment Advisor and separate entity from LPL Financial. For questions or suggestions, contact Frederick at 530-273-4425, or firstname.lastname@example.org, or visit ostrofefinancial.com. Branch address: 565 Brunswick Road, Ste. 15, Grass Valley.