Year-End Planning Part 3: Retirement Contributions

December 1, 2012

Remarkably, 2012 is quickly coming to an end.  This is a good time for you to evaluate your retirement plan to make sure that you are contributing as much as the law allows.  Some contributions must be made by year end; others can be deferred until you file your tax return next year.

Maxing out your 401(k) or 403(b):  Most of you are eligible to contribute to a 401(k) plan or the non-profit version, a 403(b).  Even if your employer does not match your contribution, you should put in the maximum allowed by law.  For 2012, that amount is $17,000.  An additional catch up provision of $5,500 is allowed for those who are 50 years of age or older (for a total of $22,500).  These contributions must be made by December 31, 2012.  If you are not on track to maximize your contribution for the year, you are allowed to put in all or some of your December paycheck to reach the maximized level.  Talk with your Human Resources Department to find out how to change your contribution amount to reach the appropriate level.

Making your IRA contributions:  Even if you are unable to deduct the contribution made to an IRA, you should always contribute.  This is an excellent way for you to further the growth of your portfolio in a tax-deferred or tax-free manner.  If eligible, we encourage you to contribute to a Roth IRA.  Contributions are not deductible, but your portfolio grows completely tax-free.  In either case, you have until April 15, 2013 to make your $5,000 contribution ($6,000 for those 50 years of age or older).

Required Minimum Distributions: Once an investor has reached the age of 70 ½ they must start taking distributions from their retirement plans.  This is also a requirement for investors who own beneficiary IRAs.  The penalty for failing to withdraw the correct amount is a 50% tax on the amount that should have been distributed.  Distributions must be made by December 31st.  Polaris investors have already been notified of the contribution amount, and they have been sent the necessary paperwork to make the distribution.  If you have not sent your IRA distribution paperwork back, please do so immediately.

Resetting your 401(k) plan contributions:  Next year, contribution limits for IRAs and 401(k) plans increase by $500.  Catch up provisions for investors 50 years old or greater will remain the same.  401(k) plans will now have a maximum contribution of $17,500, or $23,000 with catch up provisions.  IRAs will have a maximum contribution of $5,500, or $6,500 with catch up provisions.

As always, if you have any questions or comments please feel free to call or write.


Jeffrey J. Powell

Managing Partner, Polaris Wealth Advisers, LLC

Categories: Polaris Greystone Financial Group, LLC.

Tags: 401(k), 403(b), Required Minimum Distribution, Retirement Contributions, Retirement Plan, Roth Conversion, Roth IRA


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