You may have already heard the news: Many tax numbers that are adjusted annually for inflation did not change for 2016. For example, the 401(k) contribution limit remains at $18,000 this year, plus another $6,000 if you’re celebrating your 50th birthday during 2016. SIMPLE plan contributions remain the same for 2016 also. You can save up to $12,500 in your SIMPLE account this year, plus another $3,000 if you’re age 50 or over.
Though the limits haven’t increased, taking full advantage of allowable contributions and any amounts your employer matches is still a good idea. Contributions you make to employer-sponsored retirement plans reduce your taxable income because your employer deducts the amount you specify from your paycheck before taxes. You might also be able to benefit from a savers credit of up to $2,000.
If you’re already contributing the maximum, you may want to consider opening an individual retirement account this year. You can have both types of retirement plans, and a Roth or traditional IRA will help you diversify your retirement holdings and save additional tax-deferred or tax-free money. Just remember that your traditional IRA contribution may not be tax-deductible if you’re eligible to participate in your employer’s plan.
The maximum amount you can contribute to an IRA during 2016 is $5,500 (plus $1,000 when you’re age 50 or older).
Contact Dye and Whitcomb CPA offices in Fort Collins for information about these and other tax-sheltered accounts that can offer significant breaks for 2016.