As we head into the homestretch of this year, two things individuals may be seeking are ways to help maximize retirement savings and minimize 2017 tax liability.
One way to help do so is by contributing as much as possible to an employer-sponsored retirement plan. Many employers match worker contributions up to a certain point, so that’s just “free” money going into the account. Plus, the more you contribute, the less taxable income you will have to claim. For 2017, the maximum contribution limit for a 401(k) plan is $18,000; $24,000 for people age 50+.1
If you’re already set up to max out your account, you might consider opening and/or contributing to an IRA. Even if you don’t get to claim a tax deduction for IRA contributions (although IRA contributions can also be made pre-tax, subject to certain limits), you can still benefit from additional retirement savings and tax-advantaged compounding. In 2017, the maximum for an IRA (Roth, Traditional or both combined) contribution is $5,500; $6,500 for people age 50+.2
Here’s a little-known benefit available only for active duty military widows: They can contribute all or part of the service member’s $400,000 life insurance death benefit, and even an additional $100,000 for a combat-related fatality, to a Roth IRA within one year of receiving the payout. Because life insurance proceeds are tax-free, this benefit allows the money to be transferred to a tax-free retirement savings account, which also benefits from tax-free growth.3
Another option for those who are already contributing large amounts to a 401(k) and/or an IRA is to consider purchasing an annuity. An annuity also enables tax-deferred growth, and there typically are no contribution limits.4There is a wide variety of immediate, fixed rate, fixed index and variable annuities from which to choose. We’d be happy to evaluate your financial situation and recommend if an annuity may suit your needs and objectives.
One more tax-related bit we ran across: If you’re considering relocating during retirement to a low/no tax state, or even just wonder where your state gets its tax revenues, check out this breakdown compiled by Pew Charitable Trusts.5
Content prepared by Kara Stefan Communications
1 Brighthouse Financial. July 21, 2017. “5 Tips for Tax-Smart Investing.” https://www.brighthousefinancial.com/education/tax-smart-strategies/tax-smart-investing-strategies. Accessed Sept. 4, 2017.
3 Jeff Benjamin. Investment News. June 26, 2017. “Military benefit allows widows to put $500K into Roth IRA at once.” http://www.investmentnews.com/article/20170626/FREE/170629938/military-benefit-allows-widows-to-put-500k-into-roth-ira-at-once. Accessed Sept. 4, 2017.
4 CNN. 2017. “Ultimate guide to retirement.” http://money.cnn.com/retirement/guide/annuities_basics.moneymag/index4.htm. Accessed Sept. 4, 2017.
5 Mary Beth Quirk. Consumerist. July 5, 2017. “Should You Move? See How Your State Gets Its Tax Money.” https://consumerist.com/2017/07/05/should-you-move-see-how-your-state-gets-its-tax-money/. Accessed Sept. 4, 2017.