Woburn, MA October 26, 2006 -- Contributing to a retirement plan is one of the best tax shelters available to people during their working years. Recently, the IRS announced that most of the retirement savings limits will increase for 2007.
"Most working professionals have access to a 401(k) plan or a 403(b) plan at work. Amounts contributed to these plans generally reduce your taxable earnings and always grow tax deferred. For 2007, you can contribute up to $15,500 into a 401(k) or 403(b) plan through salary deferrals," explains Andrew Schwartz CPA, founder of FindAGoodCPA.com (
www.FindAGoodCPA.com), a site where taxpayers can locate a tax professional in their metropolitan area based on the professional's specialty.
Looking to set a monthly budget for 2007? To max out the allowable 401(k) or 403(b) salary deferrals next year, people should instruct their employer to withhold $1,291.67 per month from their pay as of January 1st.
Anyone 50 or older by December 31, 2007 can contribute an extra $5,000 into their 401(k) or 403(b) plan through salary deferrals next year for a total annual contribution of $20,500, or $1,708.33 per month.
Many smaller employers offer their staff access to SIMPLE/IRAs instead. SIMPLE's work just like 401(k) plans, which means it's up to each employee to fund the bulk of their retirement savings account through salary deferrals. For 2007, the maximum deferral into a SIMPLE is $10,500, or $875.00 per month. Anyone 50 or older by December 31st can sock away an additional $2,500 in 2007, for a total annual contribution of $13,000, or $1,083.33 per month.
What if a person is self-employed? Each year, sole proprietors can contribute up to 20% of their net self-employment income into a SEP IRA. The maximum contribution for 2007 is $45,000, or $3,750 per month.
Solo 401(k)'s are an attractive alternative to many sole proprietors and business owners with no employees who work more than 1,000 hours per year besides a spouse. For business owners who don't have access to a 401(k) or 403(b) plan through another employer, the Solo 401(k) plan makes it easier for them them to hit next year's max of $45,000. Anyone 50 or older by the end of 2007 can contribution as much as $50,000 into a Solo 401(k) next year, or $4,166.67 per month.
"And don't forget about IRA's. Even if you're covered under a retirement plan at work, you and your spouse can each contribute up to $4,000, or $333.33 per month, into a traditional IRA or Roth IRA next year, as long as your combined wages and net self-employment income exceeds the total amount contributed, subject to ceertain limitations. People aged 50 or older can contribute an extra $1,000 in 2007, increasing the total allowable contribution to $5,000, or $416.67 per month," said Schwartz.
Most people won't be able to max out these tax-advantaged retirement options unless they get on a budget and put away a set amount of money each month. With 2006 winding down, now's the time for people to start thinking about resetting their monthly retirement savings goals for 2007.
About Andrew D. Schwartz CPA
Andrew D. Schwartz, CPA is the editor and founder of
www.FindAGoodCPA.com, a site where taxpayers can interact with CPAs who specialize in a variety of niches such as healthcare, real estate professionals, and lawyers. Schwartz has provided tax and basic financial planning advice in interviews with various media, including the Washington Post and Wall Street Journal. He is available for interviews.
