Wednesday, 06 February 2019 19:00

It’s Not Too Late to Save For 2018

By Stephen Kyne | Families Today

2018 MAY BE OVER, but for many of us, the books are not completely closed. As we open the tax filing season, options may exist to sock extra funds away and keep a little more of your hard-earned money away from Uncle Sam.

You may not realize but you may be able to make contributions to your Roth IRA for 2018 up until the earlier of your tax filing date, or April 15.  If eligible, the contribution limit is $5,500 ($6,500 for those age 50+), but don’t be discouraged if you are not able to fully fund your account for the year. Every bit you can save will help provide for your lifestyle in retirement, so a partial contribution is better than no contribution at all. 

Just because one spouse may be a homemaker or already retired, doesn’t mean that they can’t take advantage of a Roth IRA.  IRS rules also allow for contributions to an account for a homemaker or retired spouse, as long as the working spouse has sufficient earned income, even if the spouse is older than 70 ½.

Since Roth IRAs provide tax-free distributions and are not subject to Required Minimum Distributions at age 70 ½, they can be an extremely beneficial retirement funding option!

One last point on your Roth IRA: Contribution limits have been raised for the first time in several years, for 2019. New limits are $6,000, plus an extra $1,000 catch-up for those age 50+. As you budget your savings for the new year, remember to increase your contributions to keep up with the new limits.

For those who are self-employed, and don’t have access to a retirement plan through an employer, you may think you’re being disadvantaged when it comes to saving for retirement. The opposite, however, may be true. As a self-employed person, you could have the options of contributing up to $56,000 to a retirement plan for 2018, and deducting the full contribution!

Anyone whose earned income is reported to them on a form 1099, K1, or other similar non-employee form, may be eligible to establish and fund a retirement plan for 2018. The IRS rules allow this to be done up until the filing deadline (including extensions) for the previous year. Popular plan options include a SEP IRA and Individual 401k. 

A SEP IRA can allow you to contribute up to 25 percent of your income with a maximum contribution of $56,000, and can be appropriate for workers with high income and no employees. Because of the 25 percent limitation, your income would need to exceed $224,000 in order to fully contribute.

An Individual 401k has the same funding limit of $56,000 for 2018; however, there is not a 25 percent limitation. In other words, a self-employed worker (with no employees) earning $56,000 may be eligible to contribute all of their income to an Individual 401k without being limited by the 25 percent cap. So, if you have a working spouse, or other means of making ends meet, an individual 401k may be a great option for supercharging your family’s retirement savings!

Individual 401ks require more in the way of record keeping and compliance, so they can be more expensive and cumbersome than a SEP IRA. Remember, you don’t have to be able to fully fund a plan for it to still make sense. Don’t rule out an Individual 401k because you can “only” afford to contribute $30,000 to it.

As a point of disclosure: Your circumstances are unique and tax regulations can be very complex. Before implementing any tax strategy, we recommend working closely with your independent financial advisor and tax preparer to determine eligibility and funding limits, and to ensure your retirement funding and tax strategies comply with all appropriate regulations. 

Stephen Kyne is a Partner at Sterling Manor Financial, LLC in Saratoga Springs, and Rhinebeck. 
Securities offered through Cadaret, Grant & Co., Inc. Member FINRA/SIPC. Advisory services offered through Sterling Manor Financial, LLC, an SEC registered investment advisor or Cadaret Grant & Co., Inc. Sterling Manor Financial and Cadaret, Grant are separate entities.

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