Usually when I talk about “that time of the year” people look at their watch or calendar trying to remember what holiday is around the corner. In this case, I am referring to your retirement plan at work and how much you contribute along with your company match.Are you contributing the maximum or nothing at all? This is the time of year to review what you have done for the previous nine months and tweak what you are doing for the final two or three months.This is a simple math problem: Your company is set up to contribute 6 percent matching funds:
- You contribute only 3 percent to your 401(k). How much does your company contribute to your account?
- You contribute 5 percent, how much does your company contribute to your account?
In the two scenarios above, are you maximizing your company’s contribution or are you leaving the company’s money on the table?You can also figure out what your tax bracket is for your taxable income. Why do you need this? To see how much of an impact increasing your contribution may have on potentially decreasing your taxes for 2005. You can get the current rates by going to
www.irs.gov or calling the IRS at (800) 829-3676 and requesting form 1040-ES (E). Once you have the form, sit down with a pencil and a piece of paper and work the math.When I do this for clients, they are amazed that by increasing their before-tax contribution, they can potentially decrease their tax exposure in the current year.Contributions to a qualified 401(k) plan for 2005 are subject to a maximum contribution of $14,000 and for those of us age 50 or above the maximum is $18,000 for the year.For traditional IRA’s, the contribution limit is $4,000 and for those age 50 and above, $4,500.Think of it, you are doing tax planning before April 2006!Getting back to the math problem: Yes you are leaving the company’s money on the table. If the company’s match is 6 percent and your contribution is anything less than their match is you are not receiving the fullest benefit possible.In my experience, this is the time of year when more business owners begin to look at qualified retirement plans for themselves, their companies and employees. They are business people who understand the value of their employees and the need for retirement planning as well as the value of a dollar.
Donnell Services, LLC719-886-3377Registered RepresentativeSecurities America, Inc.Member NASD, SIPCFor more information, visit www.alexdonnell1.sarep.comDonnell Services, LLC and Securities America, Inc. are independent companies.
