Sure politicians assure us that Social Security will be there for us. But we know we can’t or don’t really want to live on that federal retirement money alone.
So we stash as much cash as we can afford in retirement plans.
The good news is there are some tax advantages to encourage us to do just that.
The Internal Revenue Service today released inflation-adjusted amounts for individual retirement accounts and pension plans to help us keep our savings on track.
Workplace plans generally known as 401(k)s offer retirement and tax benefits. Workers put money into 401(k)s before their payroll taxes are computed so that means a bit less in taxes taken from worker paychecks. The money in the accounts isn’t taxed as the account grows. And in many cases employers match a portion of the contributions.
The downside is that when the account owner starts taking out money in retirement taxes are due at the account owner’s ordinary income tax rates.
Still it’s an easy way to save for retirement. And for 2013 you can put up to $17500 in a 401(k). That’s up from $17000 in 2012.
If you’re 50 or older you can contribute even more — an extra $5500. That means a worker nearer to retirement can catch up by stashing as much as $23000 in a 401(k) in 2013.
OK that’s a lot of money and you can’t really afford to take that much out of your pay to put toward retirement. You are after all trying to live in the here and now.
That’s cool. Contribute what you can and try to put in at least as much as your employer will match.
Lindemeyer CPA would be happy to walk you through any tax questions you have about retirement. Contact our office to talk with one of our Louisville tax professionals.