Here at Prime Time Money we’ve been focusing on how the mid-point in the year is a good time to revisit your financial situation and see where you stand. To help get you started, I’ve put together a series of ideas to help you conduct your own mid-year financial check-up. So far we’ve covered:
#3 – Got Bad Debt?
Last in the series is a review of the annual contribution limits on your retirement accounts. There are several ways for you to save money pre-tax OR after-tax without tax on your earnings. While I’m not going to get too specific on the different types of account, I will focus on the limits and how you can maximize.
The 2008 pre-tax Traditional 401(k)/403(b) combined contribution limits are set at $15,500, if your employer allows it. If you’re 50 or older you can make an additional $5,000 “catch-up” contribution. Again, only if your employer allows it. You’ve typically got until December 31st, 2008 to fully fund this account. Lastly, the matching contributions made by your employer are NOT counted toward your 401k contribution limits.
Note: If you’re interested in making more contributions to your 401(k), you can do so, up to $46,000, but they will have to be made after-tax (not advised b/c of the double taxation).
The 2008 Roth 401(k)/403(b) contribution limit is set at $15,500, as well. The Roth 401(k) also has a “catch-up” incentive of $5,000, for those 50 or older. Keep in mind that the Roth products can only be funded by after-tax dollars. However, your money can be withdrawn, at retirement, tax-free. Again, the deadline is December 31st, 2008, and any match you get doesn’t count against your limit.
Note:Keep in mind that the pre-tax limit on the traditional 401(k)/403(b), and the limit on the Roth 401(k)/403(b) are a combined limit. You’re total contributions to all are limited to $15,500, plus the catch-up if you’re 50 and older.
Traditional and Roth IRA
The 2008 IRA contribution limits are $5,000. If you are 50 years old and up you can contribute an additional $1,000 as a “catch-up”. The deadline for contributions is your tax filing date in 2009. So, as late as April 15th, 2009, which gives you an extra few months to contribute.
Note: There are income rules that may limit your ability to contribute to an IRA. See the IRS rules on IRAs.
Make a Plan to Max Out
Now that you know your limits, set a plan to make the most of your available limits. Similar to the calculations we performed in “Are You Saving Enough?“,
- figure out how much you’ve saved towards your limits already (i.e. review your account statements);
- subtract that from the total limit (above); and
- divide that number by the number of days/weeks/months you have left to contribute.
That number will determine how much you contribute each period towards your goal of “maxing out.” Simple enough, right?
Bonus: Flexible Spending Accounts
If you’ve previously contributed to your company’s flexible spending account plan (which allows you to pay for certain medical-type expenses with pre-tax dollars), determine how much you’ve claimed so far and how much you’ve got left. Most of the time under these plans your money is “use it or lose it”, so you’re going to want to spend it all. Visit this list of qualifying expenses to see what else you might can claim.
Disclaimer: Please do your own research and consult a qualified financial professional before making any financial decisions, especially decisions about taxes and retirement accounts.