How to maximize retirement savings
- Children earning limited amount while students.
- One can make a limited contribution to an individual retirement account. That amount, however, is limited to 100 percent of earned income or $4,000. Since earned income is not taxed at the “Kiddie Tax” rates, it would make more sense for such a contribution to be made to a Roth IRA instead of the traditional IRA.
- Students working before going to grad school.
- The college grads could contribute to a traditional IRA while working. This would entitle them to the contribution deduction which could be converted to a Roth IRA.
- Employers matching 401 (k) contributions.
- The employee should maximize, at least to the extent that an employer matches them under the plan. The incremental value of the 401 (k) account balance will be quite rewarding if their contributions, employer matching and the tax deferred earnings are compounded every year.
- Resist opportunity to withdraw.
- Once money is withdrawn, it cannot be re-contributed back into the account (except in certain instances when re-contribution is within 60 days or within the same taxable year).
- Use regular savings.
- Employees 55 and over may be able to make an additional contribution. The maximum contributions have also increased. The amount for the additional contribution in 2007 is $15,500, and $5,000 for the maximum.
Tags: Taxes · Tips
