Looking ahead, consider increasing your contributions early in the year when you can. Retirement withdrawal strategies: Stay tax smart.
You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements. Insurance products and plan administrative services provided through Principal Life Insurance Co.
Securities offered through Principal Securities, Inc. Catch-up contributions: How do they work? If your employer offers a k plan , it can be one of the easiest and most effective ways to save for your retirement. But while a major advantage of k plans is that they let you put a portion of your pay automatically into your account, there are some limits on how much you can contribute. Each year, usually in October or November, the Internal Revenue Service IRS reviews and sometimes adjusts the maximum contribution limits for k plans, individual retirement accounts IRAs , and other retirement savings vehicles.
On Oct. The federal income tax filing due date for individuals has been extended from April 15, , to May 17, Payment of taxes owed can be delayed to the same date without penalty. Your state tax deadline may not be delayed. All of the basic limits remain the same in Any contributions you make to other types of retirement accounts, such as IRAs, do not affect your k contribution limit.
To encourage workers nearing retirement to speed up their savings, the IRS allows k participants ages 50 and over to make additional contributions beyond the standard contribution limit. This amount remains the same in Another big benefit of participating in a k plan is that your employer may contribute to it as well.
Employers can also make elective contributions regardless of how much or little the employee contributes, up to certain limits. If you earn a very high salary, you may be considered a highly compensated employee HCE , subject to more stringent contribution limits. To prevent wealthier employees from benefiting unfairly from the tax benefits of k plans, the IRS uses the actual deferral percentage ADP test to ensure that employees of all compensation levels participate proportionately in their companies' plans.
If non-highly compensated employees NHCEs do not participate in the company plan, the amount that HCEs can contribute may be restricted.
Evaluating your estimated contributions for the year ahead and analyzing your contributions at the end of a calendar year can be very important. If you find that you have contributions in excess of the limits , the IRS requires notification by March 1, , and excess deferrals should be returned to you by April 15, The chart below from the Society for Human Resource Management and information from the IRS provides a breakdown of how the rules and limits for defined-contribution plans k , b , and most plans are changing for vs.
If you were born on New Year's Eve, you can still take it. Internal Revenue Service. Federation of Tax Administrators.
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