Monday, March 19, 2012

401(k) Contributions

Boost Your 401(k) Contributions

For most taxpayers, investing in a 401(k) is the best way to lower your taxes and build a retirement nest egg. If you're among the 51 million Americans who participate in a company's 401(k) plan, you can contribute up to $17,000 in 2012, up $500 from 2011. If you are 50 or older, you can stash an extra $5,500 in catch-up contributions for a total of $22,000.

If you pay 30 percent of your income in federal and state taxes, each $100 contributed to your 401(k) costs you just $70. If your company matches your contributions at a rate of, say 50 cents on the dollar, you end up with $150 in savings for something that cost you only $70. If you are self-employed, you can stash even more into a solo 401(k) plan and a tax-deferred retirement account because you contribute as both an employee and an employer.

Roth IRAs are a great option for anyone interested in tax-free retirement income, and are particularly good for young workers who could benefit from decades of tax-free growth. Roth IRAs are also good for anyone who expects to be in a higher tax bracket in retirement.

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