In last month’s part one of Alphabet Soup, the different types of retirement plans were brought to the forefront for your information. This month, how much you may contribute will be discussed, along with one specialized “Defined Benefit Plan.”In the Internal Revenue Code (IRC) jargon, there are limits as to how much money can be deposited into your qualified retirement accounts. The question that usually comes up is, “If I have a 401(k) at work, can I still contribute to my Individual Retirement Account (IRA)?” The answer is a hedged maybe!Section 415 of the IRC states that you can contribute to both based on your income and certain limitations. For your IRA, you may contribute up to $3,000 ($3,500 if over 50 years of age) and have at least the same amount as reportable income. Your income also sets the limit to your 401(k) with a maximum contribution of $13,000 in year 2004 with a “catch-up” provision, for those over age 50, of an additional $3,000 this year. Income restrictions may apply for taxpayers in higher marginal tax brackets. Please check with a financial advisor regarding those limits!The importance of utilizing your employer’s retirement plan, if there is one, should be stressed. If your employer does not have one, contact a financial advisor. As an example, if your company has a 401(k) “Defined Contribution Plan”, with an employer-matching contribution of 6 percent, in theory, you would want to contribute the maximum amount to be able to obtain the maximum contribution. Example: The employer has a dollar for dollar 6 percent matching contribution, and you contribute 6 percent, which is a 100 percent increase in the dollars that your account balance has! The pitfall here is that you did not become active in the plan until just last month!The other plans that work for individual employers/employees or companies with a few employees are “Single 401(k)s,” “SEP-IRA” and “Defined Benefit Plans.” If you are in this category, there are plans made especially for you!The specialized “Defined Benefit Plan” mentioned earlier works well for business owners who are tired of having the IRS as the first or second best paid “employee” not on the payroll! Through this plan, a 45-year-old business owner with income of $75,000 can contribute approximately $266,000 – a 55-year-old business owner – approximately $480,000! (Economic Concepts, Inc.)There are criteria to meet, which include age, the number of years to retirement, the average three highest years of earnings, ten or fewer employees including you and very good cash flow for a minimum of the next three years. There is a potential for VERY BIG TAX SAVINGS! If you are paying a lot in taxes or feel that you are, you need to talk to a financial advisor and find out if this plan will work for you.Donnell Services, LLC719-886-3377Registered RepresentativeSecurities America, Inc.Member NASD, SIPCwww.alexdonnell1.sarep.comDonnell Services, LLC, Securities America, Inc. are independent companies.
