With the year-end approaching, now is the time to consider funding your retirement accounts and potentially cutting your 2019 tax bill and/or maximizing your retirement contributions.
For small business owners that are self-employed, remember you can contribute up to 20% of your self-employment earnings with a maximum contribution of $56,000 for 2019. If you are employed by your own corporation, up to 25% of your salary can be contributed with the maximum being $56,000. The deadline for making your contributions is the actual filing date of your 2019 tax return, including extensions.
For individuals, maximizing your retirement contributions may help reduce your 2019 tax bill depending on the type of plan you contribute to. The maximum contribution to your 401k plan for 2019 is up to $19,000. Simple IRA and Simple 401k contributions are $13,000 and maximum contributions to IRAs including Roth IRAs are $6,000.
Don’t forget about those catch-up contributions for taxpayers over the age of 50. You can add another $6,000 to your 401k, another $3,000 to your Simple IRA, and another $1,000 to your traditional or Roth IRAs.
Maybe it’s time to consider converting your traditional IRA to a Roth IRA. Statistics show the best profile for this strategy is when you expect to be in the same or a higher tax bracket during your retirement years. A current tax hit on a conversion this year may be a smaller price to pay for completely avoiding potential higher tax rates during your retirement years.
If you don’t have an established retirement plan or account in place, now may be the time to consider it. Most plans need to be established by the end of the year if you want to make a deductible contribution for the 2019 tax year. However, the deadline for actually making the contribution is the filing date of your tax return, including extensions.
The time is now to start your year-end tax planning and funding your retirement accounts is one opportunity your don’t want to pass up. If you have any questions, call Amy Burns at (616) 458-1835.