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retirement planning

Investing

Changes to 401 (K) And IRA Contributions For The Year 2014

Image Credit: money.usnews.com

The year 2014 will bring some less significant changes to 401(k) and IRA contribution rules. The changes will mainly impact the IRA contribution scheme. The shared changed for retirement plans that brings a bigger saver’s credit threshold is sure to be welcomed by a larger population of taxpayers.

IRA Contribution Limits

The IRA contribution limits will stay the same as 2013 with the worker’s contribution amount fixed at $5500 in 2014. The individuals aged 50 and above can contribute an additional $1000 as a catch up contribution.

The changes in the IRA income limits are as follows:

1) Workers who are entitled to a workplace retirement plan with modified adjusted gross income of $60,000 to $70,000 will not be eligible to file for a tax deduction. The range has been increased from $59,000 to $69,000 last year.

2) Married couples with workplace retirement plans in the range of $96,000 to $116,000 per household will not be able to file for tax deduction as well.

3) Workers who do not have workplace retirement plans, but are married to a spouse who has one, and if their shared income is between $181,000 and $191,000, are not eligible for tax deduction. This range has been increased by $3000 from 2013.

Higher Roth IRA Income Cutoffs

A major highlight of the IRA contribution changes for the year 2014 is the higher Roth IRA income cutoffs. Workers can earn $2000 more ($3000 for couples) in 2014 and still be qualified to contribute towards Roth IRA. Investors who earn more than the adjusted gross income (AGI) phase-out range for Roth IRAs ($114,000 to $129,000 for singles and heads of household and $181,000 to $191,000 for married couples) may still be able to convert traditional IRA assets to a Roth. The only hitch is that the conversion of traditional IRA assets to Roth might be taxed.

Limits for 401(k) Contributions

The limits for 401(k) contributions remain unchanged from 2013. Taxpayers can contribute up to $17,500 to their 401(k), 403(b), most 457 plans and the federal governments Thrift Savings Plan in 2014. The catch-up contribution limit for employees aged 50 and older has been left unchanged at as well $5,500.

Overlapping Changes

A major change in the tax cut off that it will benefit the low and moderate income workers saving in 401 (k)s and IRAs with the eligibility to claim a tax credit of up to $1,000 for individuals and $2,000 for married couples. Couples will be eligible to claim the saver’s credit until their AGI exceeds $60,000 (which is $1,000 up from last year’s $59,000). Moreover, the heads of households can claim the saver’s credit until their AGIs exceeds $45,000, while individuals can claim it until their AGIs reach $30,000.

According to a statement released by the US Internal Revenue Service, the reason for the minor changes in the 401 (k) and IRA rules is due to the fact that inflation, as measured by the consumer price index, did not meet the statutory thresholds for their adjustment. Hence, the contribution caps have not been raised significantly for the year 2014.

About the Author

Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning firm based in Goodyear, AZ. He regularly blogs at Biggerpocket, SocialMediaToday, MoneyForLunch & his own blog where he focuses on retirement planning, investment, securing future related topics.

January 19, 2014

Investing

5 Tips For Managing Your Income In Retirement

While most Americans spend a great deal of time thinking about retirement and planning out their investments to make sure they enjoy their golden years, most people fall far short of those goals. There are simply too many distractions early in life, and too many ways that even the best laid plans can take a wrong turn. Even if you did everything right, changes in the economy and the cost of living can leave you with the scary realization that you’ll outlive your savings account. The fact that most traditional pensions are disappearing doesn’t help matters, and it’s often too late to do anything about it when you finally do realize you’re behind the eight ball. But regardless of how bleak it may seem, there is always a silver lining. The sooner you get back in action the better. So here are five tips to help you manage your income in retirement.

You won’t be able to decide on a plan of action until you fully understand the reality of your situation. So start things off on the right foot by performing a detailed cash flow analysis. Most people fall short of their goals because they don’t take the time to understand exactly how much money they need to maintain a comfortable lifestyle during retirement. You can get things rolling by making an easy calculation. If you can save around 80% of your pre-retirement income you’ll be okay. But that doesn’t leave much room for vacations and fun purchases. So take a look at your monthly expenses, and compare that number to the money you reasonably expect to take in each month during retirement. This is the baseline you’ll take action on from here on out.

April 3, 2013

Investing

Do You Need A Financial Advisor?

Money is so simple conceptually, but so complicated in reality. Everyone understands exactly how it works. You perform a service or sell some sort of product and you are compensated with money you can then turn around and use to purchase the services or products you require. It’s black and white, right? While the concept is plain enough for anyone to grasp, the market economy is by no means as easy. How to navigate the world of credit, how to organize your finances, how to grow your savings and how to make your money work for you are all strategies people grapple with during the course of their lives, sometimes successfully, but often with disappointing results. That’s why financial advisors exist. Their job is to look at your goals and help you realize them. But how do you know if you need a financial advisor?

The first thing you must look at is if you can afford one. Financial advisors earn that title by graduating with an advanced degree and logging many years on the job. But their job isn’t done after they hang that diploma on the wall. Financial advisors must stay current on changes in the market, what strategies are proving successful, and which investment tools are no longer attractive. It’s a constant juggling act of research and client hours. With this sort of work load you can expect a quality financial advisor to demand a significant salary. You will be just one of his many clients, and pay an hourly fee for his time. So if you don’t have a significant portfolio and money to spare each month you can’t go down this road.

February 4, 2013

General

Retirement Planning And Your Health

When it comes to retirement planning, be sure to not only consider the financial side of things. Remember that taking care of your health is equally important. You may be saving enough money to enjoy a long retirement, but if you aren’t exercising regularly and eating healthy foods, you may not be in prime physical shape in order to enjoy the things you plan to do upon retirement.

Although we cannot control our health entirely, the choices we make today will have a significant impact on our overall physical health. When it comes to making healthy choices, don’t be too cheap. Be willing to spend your money on the things that promote good health such as fresh vegetables and fruits, whole-grain pastas and breads, and multivitamins. Don’t be too frugal when it comes to healthy choices, and despite what some may think, eating healthy doesn’t have to cost a lot. If you compare the cost of buying fresh produce to buying prepackaged processed foods, you will discover that prepackaged foods can end up being more costly.

July 7, 2010

Investing

Investing For Later When Times Are Tough

There is nothing quite like tough economic times to bring frugality into brilliant focus. Survival issues drive every decision. Priorities suddenly assume an importance beyond what was ever thought possible. Health issues give way to paying the rent or putting food on the table. The price of gasoline reduces driving a car to when it is only absolutely necessary. Clothes and furniture are now luxury items that must be put off. And then you are reminded of saving for retirement. Surely, that can be put off, too?

Unfortunately, time is not on your side when you put off saving for your future well being. The price for living an older life with dignity keeps increasing, right along with everything else, and probably more so due to the hyperinflation in the medical industry. Social Security may only supply 40% of your desired retirement income. You will need additional savings, and the best time to start is always now, even if economic times are tough.

June 25, 2010

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