Lawrence blau & associates, llc

401(K) PLAN


These are employee sponsored defined contribution retirement plans and are very popular. The key elements are:

  • A participating employee has the option of receiving compensation in cash or having it contributed pre-tax to the plan.
  • An employee’s contribution is subject to an annual limit. For 2016, that annual limit is $18,000. This annual limit is for all 401(k) plans for the year.
  • An individual who will be 50 years of age by the end of a tax year may make additional “catch-up” contributions. The maximum catch-up contribution for 2016 is $6,000. Catch-up contributions may only be made if the plan permits this type of contribution.
  • Matching contributions made to a 401(k) plan by the employer are not treated as an employee’s elective and not subject to the annual limit.​

ROTH IRA


​This a retirement account that allows your money to grow tax-free.  Anyone can contribute to a non-deductible traditional IRA, but not everyone can contribute to Roth IRA.  Roth IRAs are typically setup and funded for young taxpayers where the growth period is longer and current income is lower.  Roth IRA basics:

  • For those who qualify, the maximum contribution under age 50 is $5,500 and for individuals over 50 years of age it is $6,500.
  • The Roth IRA account must be established by April 15th, but does not have to be funded until you file your return.
  • The benefit of the Roth IRA over the non-deductible traditional IRA is that when you start to withdraw the funds all withdrawals are tax-free if withdrawn after five years from the accounts formation.
  • There are limits on who qualifies to fund a Roth IRA. The income limits for contributions for a single taxpayer are $132,000 and $194,000 for a joint return. The contribution starts to be fazed out at $117,000 for single taxpayers and $184,000 for individual taxpayers. Traditional IRAs can be converted to Roth IRAs, but there are tax consequences. ​​​

SEP IRA (SIMPLIFIED EMPLOYEE PENSION) AND PROFIT SHARING MONEY PURCHASE ACCOUNT


​A type of traditional IRA for self-employed individuals or small business owners.  Key facts are:

  • Any business owner with one or more employees, or anyone with freelance income can open this account.
  • For 2016, business owners can contribute up to 25% of income or $53,000 whichever is less.
  • The SEP IRA is established by an employer and funded by the employer. The employer receives a tax deduction and the contribution is excluded from the employee’s gross income.The deduction is limited to 25% of the employee’s compensation. You cannot discriminate in favor of highly compensated employees and contributions must be made for all employees who are 21 years old and earn at least $600 annually. The contributions are not mandatory and do not need to be made every year.
  • SEP IRAs must be established by the employer’s tax filing deadline including extensions for the tax year to which the qualifying contribution applies.
  • Profit Sharing Money Purchase Plans must be established, but not fully funded, by December 31st  of the appropriate year.​

I invite you explore my summary of the various types of popular retirement plans currently offered and the qualifications, limits and tax implications. All limits and amounts are for 2016.  As always, I am happy to walk through details of the retirement plans and help you determine which strategy makes most sense for you. Please contact me at 914-941-5533 or larry@LawrenceBlau.com with any questions or concerns that you may have.
-Larry Blau, MBA, CFP, RTRP 

Accountant 10562

TRADITIONAL IRA


​​​​​​​Many of us are aware of a traditional IRA, as it has been around for over 40 years.  Basic facts are:

  • The maximum current contribution for people under age 50 is $5,500 and for individuals over 50 years of age it is  $6,500.
  • The contribution is not due until the filing of your tax return and is fully tax deductible if you qualify. The IRA account must be setup by the filing deadline or April 15th.  
  • To qualify for a full tax deduction neither you nor your spouse can be covered under any employer retirement plan. If you and your spouse are covered, then your contribution would still be fully or partially deductible based upon filing status and income limits.
  • The deductible is fully phased out after an individual reaches $71,000 of adjusted gross income. When a joint return reaches $118,000 of total adjusted gross income, it is no longer fully deductible. If only one spouse is covered under an employer plan, the contribution is fully deductible up to $184,000 of total adjusted gross income and the deductibility is fully phased out at $194,000.
  • Additionally, many times I get asked if an individual should make a contribution even if the contribution would be non-deductible. The benefit of this type of investment is that all the growth and income earned would be tax-deferred. When the funds are withdrawn, the original contributions are not taxed, but only the growth and income is subject to the tax rates in existence when the individual takes the distributions.​
Lawrence Blau & Associates, LLC for all of your expert accounting, tax and financial services needs in Westchester NY

4 RETIREMENT PLANS:  

WHICH STRATEGY IS RIGHT FOR YOU?

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