Monday, January 07, 2008

Public Service Announcement

It’s time for the annual Declaration of Tax-Advantaged Accounts Contribution Limits, 2008 edition! YAY! (Oh, stop laughing. A few of us are passionately interested.)

For your 401k, your Federal limit is again $15,500. There were rumors and suspicions it might be raised to $16,000 this year, but alas, no. This may be more than your specific plan allows, but if you’ve got no employer-imposed limits (“no more than 8% of your total salary”) then $15,500 is the number to hit.

Remember that the 401k deductions are not taxed at the time of earning, which in English means that putting $200 a month into your 401k does not necessarily mean $200 less in take-home pay, because you will not be taxed on that $200 in income.

For the IRA, traditional or Roth, you can put away up to $5,000 this year; if you are 50, you can add another $1,000 in “catch up” money without penalty. This money is usually put in post-tax, but you get credit for it when you file taxes at the end of the year – if you care to do the math you can adjust your W4 and get the tax savings upfront here, as well.

And as a final note, very few of us can manage to put the max into these accounts. $15,500 is a lot of clams, and not a lot of us can say, “Oh yes, my goodness, I’ve got fifteen grand just lying around here with no use for it, ha ha ha…”

Don’t let that stop you. Do what you can, and be proud! Every dime will help, come retirement-time. Think of all the things you want to do when you finally clear out your last cubicle for good and all…and what that $10, $100, $1,000 will buy for you then. (With a little extra ‘oomph’ for the compounding interest that will be growing it every month between now and then.)

OK, we now return you to the regularly scheduled whining, ranting and musing.


Marty52 said...

I like your financial hints. Alot. I am going to try not spending ANY excess money this year in an attempt to pay down our credit card balances once and for all. At 55, it is time to get serious about this retirement thing I hear so much about. Any further help on that front would be most appreciated. Not that I don't like your "regularly scheduled whining, ranting and musing." ;0)

21stCenturyMom said...

Oh thank you thank you thank you.

I was talking to my financial guy yesterday and he pointed out that in a down year you can transfer funds from a 401K or IRA to a Roth and just pay income tax on that money (the tax you never paid before). When you retire your Roth money can be used tax free because you did pay income tax on it when you earned it. So with a Roth you get to grow the money and NEVER pay taxes on it again.

I wish I had known this years ago when my income was pretty close to zero. I might have to do that in the future!

He also told me that for the catch up on the Roth you have to be 55 so I'll have to check on that.