Clock is Ticking for Retirement Plan Contributions

Article Highlights:

• 2013 IRA contributions can be made through April 15, 2014
• 2013 SEP IRA contributions can be made through October 15, 2014
• 2013 Health Savings Account contributions can be made through April 15, 2014
• 2013 Coverdell Education Account contributions can be made through April 15, 2014

Did you know that you can make tax-deductible retirement savings contributions after the close of the tax year? Well, you can and with April 15th looming, the window of opportunity to maximize retirement and other special-purpose plan contributions for 2013 is closing. Many of those contributions not only build the retirement nest egg, but also deliver tax deductions for the 2013 tax return. Let's take a look at some of the ways a taxpayer can benefit.

• Traditional IRA – The maximum contribution to an IRA for 2013 is $5,500 ($6,500 if over 49 years old). The 2013 contribution can be made up to April 15th. If the taxpayer is covered by another retirement plan, some or all of the contribution may not be deductible. To be eligible to contribute to an IRA of any type, the taxpayer, or spouse if married filing jointly, must have earned income, such as wages or self-employment income.
  
  
• Roth IRA – This is a nondeductible retirement account, but the earnings are tax-free upon withdrawal, provided that the holding period and age requirements are met. Roth IRAs are a good alternative for many taxpayers who aren’t eligible to deduct contributions to a traditional IRA. The maximum deductible contribution for the 2013 tax year is $5,500 ($6,500 if the taxpayer is over 49 years old). The 2013 contribution can be made up to April 15th.
  
  Caution: the combined traditional IRA and Roth IRA contributions are limited to $5,500 ($6,500 if the taxpayer is over 49 years old).
  
  
• Spousal IRA – A non-working spouse can open and contribute to a traditional IRA or Roth IRA based upon the working spouse’s earned income, subject to the same contribution limits as the working spouse, but the combined contributions of both spouses cannot exceed the earned income of the working spouse.
  
  
• SEP-IRA (Simplified Employee Pension) – SEP-IRAs are tax-deferred plans for sole proprietorships and small businesses. They are probably the easiest way to build retirement dollars, requiring virtually no paperwork. Maximum contributions depend on your net earnings from your business. For 2013, contributions are the lesser of 25 percent of compensation or $51,000. This figure increases to $52,000 for 2014. The 2013 contribution can be made up to the due date of the return, including extensions. Thus, unlike a traditional or Roth IRA, funding of a SEP-IRA for 2013 may occur up to October 15, 2014 when an extension has been granted.
  
  
• Solo 401(k) Plans – A growing number of self-employed individuals with no employees are forsaking the SEP-IRA for a newer type of retirement plan called the Solo 401(k), or Self-Employed 401(k), mostly for its higher contribution levels.
  
  For 2013, the maximum contribution to a Solo 401(k) is the sum of: (A) up to 25% of compensation, and (B) salary deferral up to $17,500. The total of A and B can't exceed $51,000 or 100% of compensation. The maximum contribution rises to $52,000 for 2014. On a last note, a Solo 401(k) account must have been established by December 31, 2013 to make 2013 contributions. If one was not established, open one now for 2014 contributions.
  
  
• Health Savings Accounts (HSA) – An HSA is a tax-exempt trust or custodial account established exclusively for the purpose of paying qualified medical expenses of the account beneficiary. An HSA is designed to assist individuals who have high-deductible health plans (HDHP). A taxpayer is only eligible to establish an HSA if he or she has an HDHP. For 2013, this means that the plan must have a deductible amount of $1,250 or more for self-only coverage or $2,500 for family coverage. In addition, the annual maximum out-of-pocket costs for covered expenses can’t exceed $6,250 for a self-only plan or $12,500 for a family plan.
  
  The maximum 2013 contribution for eligible individuals with self-only coverage under an HDHP is $3,250, while an eligible individual with family coverage under an HDHP can contribute up to $6,450. The contribution limit is increased by $1,000 for an eligible individual who was age 55 or older at the end of 2013; however, no contribution can be made as of the month that an individual is enrolled in Medicare. Amounts contributed to an HSA belong to individuals and are completely portable. Every year, the money not spent on medical expenses stays in the account and gains interest tax-free, just like an IRA. Unused amounts remain available for later years (unlike amounts in Flexible Spending Arrangements that may be forfeited if not used by the end of the year). Contributions to an HSA for 2013 can be made through April 15, 2014.
  
  
• Coverdell Education Savings Account – These plans were originally called Education IRAs, but that moniker created confusion since they were really not retirement accounts. They are now called Coverdell Education Savings Accounts, named after the late Senator from Iowa. Contributions, which can be made for a beneficiary who is under 18 years of age, are not tax-deductible, but the money grows tax-free if the distributions are used to pay qualified education expenses. The maximum annual contribution is $2,000 per beneficiary, but this amount could be reduced partly or totally depending on income. Contributions do not count toward IRA annual contribution limits; they are also due by April 15, 2014 to be considered as having been made for 2013.

Please note that information for each plan or account above has been abbreviated. Contact this office for specific details on how they may apply to your situation.

---