You’ve probably heard the old Chinese proverb: “The best time to plant a tree was 20 years ago. The second best time is now.”
A third option would be to go down to your local nursery and buy a tree that’s already 10 feet tall.
It’s good to be able to make up for lost time. And this is exactly what you should be doing with your retirement accounts before year end.
Of course it’s always best to make your retirement contributions automatic. To give them top priority, they should be something you don’t have to decide on each month. You should pay your future self just like you pay your mortgage.
However, even if you are using automatic payments, you may not have been able to set the amount to add up to the maximum allowable contribution by year end. At the time it just didn’t seem feasible. But now, reevaluating later in the year, you may find that you can afford to put away even more money than before.
November is the perfect time to take a second look at your annual retirement contributions so you not only give your nest egg a boost, but you might possibly save on your taxes.
Do you have any of the following plans?
401(k), 403(b), Thrift Savings, and most 457 plans – As an employee participating in one of these plans, your maximum contribution of pre-tax funds is $18,500. If your contributions fall below that, you may be leaving money on the table in the form of matching contributions.
Traditional IRA or Roth IRA – Your maximum individual contribution is $5,500.
SEP IRA – Often used by self-employed people, the contribution limits are the lesser of 25% of the employee’s compensation or $55,000.
HSA – If you have family HDHP coverage, you can contribute up to $6,900 for a family. The limit for self-only is $3,450.
Like our example of buying a bigger tree at the nursery, you can also make up for some of your lost time with your tax deferred or pre-tax investment accounts. If you’re 50 and over, the IRS will allow you to make “catch-up” contributions.
For 401(k) and other employee plans you can put in an additional $6,000. For IRAs you can put in an additional $1,000.
Before making any additional contributions, talk to us to make sure you’re putting your money where it’s going to do the most for you in the long run. And then it’s advisable to consult your tax professional to be sure you’re staying within IRS guidelines.