Let me ask three questions. Are you:
- Depressed because you blew all of your opportunities to lower your taxes?
- Thinking about all the lost opportunities to retire at a younger age?
- Regretting all of the Christmas eating and New Year’s [glug…glug] indulgences?
I can’t help you with the last one, but I can help you with the first two! Many people think that 2015 is history. It isn’t for people who care about getting a nice tax return. Are you one of those people?
Depending on which retirement account you have or are willing to open, you may be able to contribute $5,500, or you may be able to contribute $53,000. The contribution amounts listed here are valid for 2015 and 2016.
Traditional IRA – Deadline to create or contribute for 2015 tax year – 4/15/2016, no extensions.
The traditional IRA is an individual retirement account. These can be set up by an individual at a bank or other financial organization. The annual contribution limit for 2015 and 2016 is $5,500 and the law allows $1,000 annual “catch-up” contribution limits for those turning 50 years of age and older this year. Under the traditional IRA, contributions are deductible, but distributions are taxed when made in the future.
Roth IRA – Deadline to create or contribute for 2015 tax year – 4/15/2016, no extensions
This is also an individual retirement account. The contribution limits are the same as the traditional IRA; however they are not deductible in the year made. Staying true to the “Roth” form, the contributions are not deductible, but the distributions do not get taxed when made in the future.
It is also worth noting that the new myRA can be contributed to up to 4/15/2016 for the 2015 tax year because the myRA is legally a Roth IRA.
Simplified Employee Plan (SEP) – Contribution Deadline for 2015 – 4/15/2016 or extension date if requested. Creation Deadline – due date (or extensions) of business tax returns.
An SEP is a retirement plan where the employer contributes directly to an IRA of an employee. The employer contributions are excluded from the employee’s gross income up to a maximum of 25% of compensation or $53,000, whichever is less. The employee is also allowed to contribute to the plan. SEPs are set up by completing IRS form 5305-SEP and retaining the form as evidence of the plan. The form 5305-SEP is not submitted to the IRS but kept for reference and in the event of an audit of the plan. Proceeds are taxed as ordinary income when distributed.
SIMPLE IRA – Creation Deadline for 2015 – Closed October 1, 2015 Contribution Deadline – December 31, 2015
Unfortunately, the opportunity to fund a SIMPLE is simply over for 2015, but they have higher contribution limits than other individual retirement accounts.
This plan is established by an employer by completing forms 5304-SIMPLE, when the employee can choose the financial institution, or 5305-SIMPLE, when the employer chooses the financial institution, which will receive the contributions. The annual limit of contributions is now $12,500 annually, while allowing $3,000 in annual catch-up contributions. The contributions are not taxed when made, but are taxed as ordinary income when received.
It is best to maximize your income by investing in your future and your retirement. Contributing money to a retirement plan not only invests in your retirement, but also puts the money in a place where creditors are usually unable to garner the money. There is still time to contribute to your retirement plan in order to reduce your taxes payable or increase your return amount for 2015. It is also worth mentioning that if you haven’t set up an IRA, you still can and fund the account as well. Knowing the basics and amounts that can be contributed to the respective plan is always valuable knowledge to have when you are planning for your retirement and taxes. If you have further questions about retirement plans, feel free to call The Center for further details.
By: Roman Basi at the Center for Financial, Legal and Tax Planning for Transworld M&A Advisors