Reset Your Monthly Retirement Savings for 2005
As the New Year begins, many retirement plans have increased their maximum contribution levels for 2005. Now is the time to reset monthly retirement savings to take advantage of increased tax breaks.
Woburn, MA (PRWEB) January 7, 2005
While December 31st is a day to reflect on the year gone by, January 1st is a time to look forward to 2005 to take full advantage of this year's increased tax breaks, according to Andrew Schwartz, CPA and founder of the MDTAXES Network of CPAÂ’s who specialize in providing tax and accounting services to health care professionals. In the monthly newsletter found on the website www. mdtaxes. com, Schwartz outlines increases in maximum contributions of the following retirement plans that are in effect for 2005:
• 401(k) and 403(b) Plans
This year, employees can contribute up to $14,000, or $1,166.67 per month, into a 401(k) or 403(b) plan through salary deferrals. Employees who were 50 or older by December 31st can contribute an extra $4,000 into their 401(k) or 403(b) plan this year, for a total of $18,000. To max out this pre-tax opportunity, employees should instruct their employer to withhold $1,500.00 each month from their paychecks.
• SIMPLE/IRAs
Many smaller employers offer SIMPLE IRAs which work just like 401(k)s in that they are funded through salary deferrals. For 2005, the maximum contribution into for a SIMPLE is $10,000, or $833.33 per month. Anyone 50 or older by December 31st can sock away an additional $2,000 this year, for a total annual contribution of $12,000, or $1,000 per month.
• SEP IRA
If you're self-employed, you can contribute up to 20% of your net self-employment income into a SEP even if you are covered under a retirement plan though another employer. The maximum contribution for 2005 is $42,000, or $3,500 per month.
• Solo 401(k)'s
Solo 401(k)'s are an attractive alternative to many sole proprietors and business owners with no full time employees (those who work more than 1,000 hours per year) besides a spouse. If you don't have access to a 401(k) or 403(b) plan through another employer, the Solo 401(k) plan allows you to sock away much more money than a SEP IRA and also makes it easier to hit this year's maximum of $42,000. If you're 50 or older, your maximum contribution into a Solo 401(k) jumps to $46,000, or $3,833.33 per month.
• 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 this year. Anyone 50 or older can contribute an extra $500, increasing the total allowable contribution to $4,500, or $375 per month.
Andrew Schwartz cautions that “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. Now's the time to reset your monthly retirement savings for 2005.”
Andrew D. Schwartz, CPA is the editor and a major contributor to www. mdtaxes. com, a website that provides income tax and financial planning information geared toward young healthcare professionals. Recently, Yahoo! Internet Life magazine chose mdtaxes. com as one of the seven essential sites for the savvy do-it-yourself taxpayer. Schwartz has also appeared on CNBC's Money Club to discuss the site. He is available for interviews.
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