Contributing to a retirement plan is one of the best tax shelters available to you duringg your working years. Recently, the IRS announced that most of retirement savings limits will increase for 2007.
Most working professionals have access to a 401(k) plan or a 403(b) plan at work. Amounts contributed to these plans generally reduce your taxable earnings and always grow tax deferred. This year, you can contribute up to $15,500 into a 401(k) or 403(b) plan through salary deferrals.
Looking to set your 2007 monthly budget? To max out your 401(k) or 403(b) salary deferrals nextt year, instruct your employer to withhold $1,291.67 per month from your pay.
Anyone 50 or older by December 31, 2007 can contribute an extra $5,000 into their 401(k) or 403(b) plan through salary deferrals next year for a total annual contribution of $20,500, or $1,708.33 per month.
Many smaller employers offer their staff access to SIMPLE/IRAs instead. SIMPLE's work just like 401(k) plans, which means it's up to you to fund your account through salary deferrals. For 2007, the maximum contribution into your SIMPLE is $10,500, or $875.00 per month. Anyone 50 or older by December 31st can sock away an additional $2,500 in 2007, for a total annual contribution of $13,000, or $1,083.33 per month.
Are you self-employed? Each year, you can contribute up to 20% of your net self-employment income into a SEP IRA. The maximum contribution for 2007 is $45,000, or $3,750 per month.
Solo 401(k)'s are an attractive alternative to many sole proprietors and business owners with no full time employees (those who work more than 1,000 hours per year) besides a spouse. If you don't have access to a 401(k) or 403(b) plan through another employer, the Solo 401(k) plan makes it easier for you hit next year's max of $45,000. If you're 50 or older, your maximum contribution into a Solo 401(k) jumps to $50,000, or $4,166.67 per month.
And don't forget about IRA's. Even if you're covered under a retirement plan at work, you and your spouse can each contribute up to $4,000, or $333.33 per month, into a traditional IRA or Roth IRA next year, as long as your combined wages and net self-employment income exceeds the total amount contributed. Anyone 50 or older can contribute an extra $1,000, increasing the total allowable contribution to $5,000, or $416.67 per month.
Most people won't be able to max out these tax-advantaged retirement options unless they get on a budget and put away a set amount of money each month. With 2006 winding down, now's the time to start thinking about resetting your monthly retirement savings goals for 2007.