Don’t Miss These Year-End Retirement Account Deadlines
In order to get a tax deduction on your 2014 tax return, there are only a few weeks left to make a contribution to your 401(k) retirement plan. The December 31st deadline is also approaching for eligible retirees to withdraw the required minimum from their retirement accounts.
It is important to note that failure to withdraw or withdrawal of less than the required minimum will result in a 50 percent federal penalty on the amount you should have taken, but didn’t.
In order to avoid facing these penalties and to protect your retirement interests, Joshua Kadish, AIF, RFC of RPG Life Transition Specialists, says every person should do these five things before the end of the year.
1. Maximize 401(k) Contributions: A 401(k) is a retirement savings plan sponsored by an employer. This plan affords workers the opportunity to save and invest a portion of their paycheck before taxes are taken out. If you’ve had the good fortune of getting a 401(k) through your employer, the deadline to make contributions to your plan is December 31st. And if you’ve neglected to take advantage of a 401(k) you’re eligible to receive, you still have time, but bear in mind time is running out. The maximum you can contribute to your 401(k) in 2014 is $17,500. If you are over age 50, you can also take advantage of the “catch up” provision and add an additional $5,500 for a maximum of $23,000, all of which is pre-tax.
2. Take Minimum Required Distributions (RMDs): When you turn 70½, the IRS requires you withdraw a minimum amount from your retirement accounts each year. When planning for retirement, the amount you withdraw is important and the timing is important, too. You must withdraw by April 1st the year following your 70th birthday. If you don’t you will face a 50% tax penalty on the amount not taken in addition to regular income tax on the amount that should have been withdrawn. If you reached 70 this year, you have until April 1, 2015, to take your 2014 distribution, but it still might be a good idea to do it before the end of this year.
3. Use Those RMDs to Pay Taxes: Consider having your RMD withheld to cover your estimated tax bill. While those taxes are generally due on a quarterly basis, having them withheld from an end-of-year RMD may help you avoid penalties associated with underpayment of taxes across the entire year.
4. Assess 2015 Contribution Levels: In 2015, the amount one’s allowed to contribute to their 401 (k) plan will go up by $500 – from 17,500 to $18,000. And for those playing catch up, they’ll have to pay an additional $500 because their contribution limit will also increase by $500 (from $5,500 to $6,000). A good course of action to avoid missing out on pre-tax contributions is to talk to your 401(k) administrator to work out a plan for the next year.
5. Don’t Wait Until the Last Minute: Procrastination is never on your side, especially when it involves costing you money. The deadline to take the required minimum distribution is December 31st. So don’t wait until mid-December to take your required minimum distribution or to make final contributions to your retirement account. There are many mishaps that can occur, such as lost requests. You certainly do not want to miss important deadlines. So, if you wait until the very last minute, you run the risk of missing the date. It’s the holidays and you have better things to do with your money.
Apply before the deadline to avoid penalties. Hurry…Don’t wait.
About the Author:
Monica Victor is a copywriter for consolidatedcredit.org. Her writings seek to help consumers successfully manage their hard earned dollars and cents, encourage folks to live debt-free and to improve or otherwise maintain a healthy financial outlook.