Q. I want to save more for retirement but I don’t have a work plan. What are my choices so I can get tax advantages?
— Want to save
A. Even if you don’t have a retirement plan with your employer, there are plenty of great opportunities to save.
“Saving for retirement without a 401(k) plan takes a little more effort,” said Bill Connington of Connington Wealth Management in Paramus. “But if you are willing to take some initiative, you can still enjoy many of the tax breaks and investment gains that workers with 401(k) plans enjoy.”
Here are five to consider.
Fund an IRA: You can defer paying income tax on up to $5,500 that you contribute to an IRA, Connington said. Investors age 50 and older can save as much as $6,500 in an IRA. He said couples can contribute $5,500 to an IRA in each of their names, even if only one spouse works, for a total of $11,000 in tax-deferred savings. And if both spouses are age 50 or older, they can shield as much as $13,000 from income tax in a traditional IRA in 2015.
Open a Roth IRA: Roth IRAs have the same contribution limits as traditional IRAs but they are taxed differently. “You contribute after-tax dollars to Roth IRAs, and then you can withdraw the money, including investment earnings, tax-free in retirement,” Connington said.
Save your tax refund: If you get a big tax refund every year, you can use the refund for your savings. The IRS will even help. IRS Form 8888 allows you to directly deposit your tax refund into up to three different saving or investment accounts, including an IRA, Connington said.
Consider the myRA: A new type of Roth retirement account, the myRA, was created by the Treasury Department in 2014. Connington said investors who earn less than $129,000 for individuals and $191,000 for married couples can save $5,500 per year, up to a maximum account balance of $15,000 in a myRA. The funds will be invested in government securities that are guaranteed not to lose value. MyRAs are funded with after-tax dollars via direct deposit through an employer, Connington said.
Claim the saver’s credit. Contributing to a traditional or Roth IRA could qualify you for the saver’s credit. “This tax credit is worth between 10 percent and 50 percent of the amount contributed, up to $2,000 for individuals and $4,000 for couples, with the largest credits going to people with the lowest incomes,” he said. “Check to see if you are eligible.”
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