It’s almost the end of 2014 and the new year is right around the corner. It’s time to go over your checklist for 2014 and make sure you’ve completed the following:
Max out your 401k
The contribution limit for this year is $17,500. If your employer matches your contribution, that limit can go over $17,500. For example an employer who matches 50% could effectively increase your contributions for the year up to $26,250! The deadline for contributing is at the end of the calendar year. If your employer has their own limit, then you may not be able to maximize your contribution at this point. My employer only allows me to deduct up to 25% of each paycheck so I won’t be maxing this out until my paychecks total $70,000.
The IRS has increased the contribution limit next year to $18,000 so plan to contribute a little more.
Max out your IRA
IRA deadlines are every tax year instead of calendar year so you have a little extra time for this. Depending on your tax bracket you may want to contribute to an IRA instead of a Roth IRA (i.e. if you’re in a high tax bracket now, but expect to be in a lower tax bracket when you retire due to planned job changes, etc) since you can defer taxes until your withdrawal period.
The combined contribution limit for 2014 for your Traditional IRA and Roth IRA is $5500. If you max out your IRA, you won’t be able to contribute to your Roth IRA. I would choose one or the other, again depending on your tax bracket.
The combined contribution limit remains the same for 2015 at $5500.
Max out your Roth IRA
If you’re in a lower tax bracket now and expect to be in a higher tax bracket in the future, I would take my post-tax dollars and deposit them into a Roth IRA over a traditional IRA. Example: If I’m working part time retail now but I expect to be making big bucks in 40 years, I’d deposit into a Roth IRA now.
The combined contribution limit for 2014 for your Traditional IRA and Roth IRA is $5500. If you max out your Roth IRA, you won’t be able to contribute to your Traditional IRA. I would choose one or the other, again depending on your tax bracket.
The combined contribution limit remains the same for 2015 at $5500.
With both IRAs, now might be a good time to save up $5500 so that you can max out your contributions at the beginning of the new year. That way you have the whole year to accumulate gains and return on your investments.
Pay your tuition before the new year
If you’re still in school, consider paying your Spring tuition now so you can deduct it on your taxes in April. Most schools have their invoice out already. I recently paid mine for next term so this is an item I can claim for my 2014 deductions.