Planning for retirement is one of the most important aspects in the financial planning process. However, only 64% of us actually takes the time to plan and save for retirement. There’s no doubt that planning for retirement can be a daunting endeavor, however not having enough resources to live comfortably during retirement is a far worse alternative. Many of us postpone retirement planning due to the perception that we will have plenty of time in the future. This is not usually the case as many retirees wish they started to save for their retirement sooner. As we start or adjust our retirement plans in 2014, it’s important to remember that we control our ability to plan and save for retirement.
Despite the fact that we can control some aspects of our retirement, there are a few that we can’t. This includes elements such as economic growth, inflation and retirement plan contribution laws. These limits can change year to year as they are dictated by Congress. In 2014 ensure that you consider the following limits in your retirement plan and adjust if necessary.
Contribution Retirement Plans Limits in 2014
Contribution retirement plans are employer sponsored investment accounts. These accounts are funded through automatic paycheck deductions. In these plans a employer sets a matching contribution policy in which they will invest a percentage of an employee's income as a retirement plan investment.
If your employer offers a contribution retirement plan, it is in your best interest to participate. Not only do these plan offer you a quick and easy way to build your portfolio, it also provides great tax advantages. Your personal retirement account contribution is deducted from your paycheck before taxes are calculated. This helps you reduce your annual tax bill.
In order to limit the amount of tax that is deductible from these retirement plans, Congress caps the amount in which can be contributed to these accounts on an annual basis. In 2014 you will be able to contribute up to $17,500 in your 401(k), 403(b) and most 457 plans. In addition if you are 50 years or older you qualify for a retirement “catch up” contribution of $5,500. This will set your total contribution limit at $23,000 a year.
Individual Retirement Plans Limits in 2014
Individual Retirement Plans or IRAs, are tax advantaged investment accounts. These common retirement plans are usually managed by the individual and can be opened at most financial and brokerage firms. While IRAs have a few advantages over contributions plans, such as investment flexibility, they do not include an employer contribution.
Individuals can contribute up to $5,500 to their IRA in 2014 and if over the age of 50 they qualify for the additional $1,000 “catch up” contribution. While the contribution limits to IRAs are limited, maxing out your contribution to your IRA is better than not having any retirement savings at all.
In addition to the limits for IRA contributions, the tax advantages are also capped by your Adjusted Gross Income or AGI. In 2014 the traditional IRA tax deduction is phased out for single taxpayers with a retirement plan at work when their incomes are between $60,000 and $70,000. However this limit is raised for married couples when their combined incomes are between $96,000 and $116,000.
If you do not have a retirement plan for 2014, it’s never too late to start. Many put off saving for retirement for a variety of reasons. Retirement is enviable and postponing preparing for it makes it more difficult.