{"id":16374,"date":"2015-03-05T10:22:24","date_gmt":"2015-03-05T15:22:24","guid":{"rendered":"https:\/\/www.saratoga.com\/saratogabusinessjournal\/2015\/03\/business-report-basics-of-tax-wise-retirement-savings.html"},"modified":"2015-03-05T10:22:24","modified_gmt":"2015-03-05T15:22:24","slug":"business-report-basics-of-tax-wise-retirement-savings","status":"publish","type":"post","link":"https:\/\/www.saratoga.com\/saratogabusinessjournal\/2015\/03\/business-report-basics-of-tax-wise-retirement-savings\/","title":{"rendered":"Business Report: Basics Of Tax-Wise Retirement Savings"},"content":{"rendered":"\n
\n
\"kyne\n<\/div>\n
Stephen Kyne, partner, Sterling Manor Financial, Saratoga Springs\n<\/div>\n<\/div>\n

BY STEPHEN KYNE<\/p>\n

We’re smack dab in the middle of tax season,
\nwhich means, for many of us, that we’re reviewing
\nwhat actions we could have taken last year to
\nimprove our tax liability position.<\/p>\n

Part of that review should include a look at your
\nretirement savings contributions and how they are
\ntreated for tax purposes. With so many different
\ntypes of retirement accounts out there, how can you
\nknow where best to save? Let’s review some basics.<\/p>\n

Seed vs. Harvest:
\nAll qualified retirement plans generally fall into
\ntwo categories for the purpose of taxation.<\/p>\n

The first category includes those accounts
\nin which only the “seed” money is taxed, yet the
\n“harvest” grows tax-free. This is to say that only your
\ncontributions are taxed, before being contributed
\nto the account, but everything those contributions
\ngrow to become will be tax-free to you in retirement.
\nThese accounts include a Roth IRA, Roth
\n403(b) and Roth 401(k) – the word “Roth” should
\nbe your clue.<\/p>\n

These types of accounts won’t generally reduce
\nyour tax liability today but, since you have tax-free
\naccess to the growth in retirement, they can go a
\nlong way to reduce your future tax liability at a
\ntime when making your assets last will be your
\nparamount concern.<\/p>\n

The second category includes those accounts in
\nwhich the “seed” money is tax-free, but the “harvest”
\ngrows to be fully-taxable when you withdraw
\nit in retirement. So, the upside is that you’ll get
\na tax break on your contributions in the current
\nyear, but everything those contributions grow to
\nbecome will be taxable to you in retirement as if it
\nwas any other income.<\/p>\n

We call these tax-deferred accounts. These accounts
\ninclude Traditional IRAs, 401(k)s, 403(b)s,
\nSEPs, SIMPLE IRAs, 457 Deferred Compensation
\nplans – generally the non-Roth plans available to
\nyou through your employer.<\/p>\n

What’s the best plan for you? The answer is: it
\ndepends.<\/p>\n

The old paradigm was that people would spend
\nless money in retirement, therefore they would be
\nin a lower tax bracket, meaning that tax-deferred
\naccounts would be more beneficial since you get a
\ntax break on the contributions and the withdrawals
\nwould be taxed at, assumedly, a lower rate.<\/p>\n

Today, people are retiring and finding that they
\nwant to do things with their time, and those things
\ncost money. The old paradigm is breaking down
\nas retirees spend more time and money traveling,
\nbuying “toys”, and generally enjoying themselves.
\nMany are finding themselves in the same or higher
\ntax bracket in retirement, meaning tax-deferred
\naccounts are being hit hard by taxes.<\/p>\n

Diversification doesn’t just mean a mixture of
\ntypes of stocks and bonds anymore, it is equally
\nimportant to diversify the way your retirement
\nincome will be taxed in order to have more control
\nover your tax liability in retirement, to help ensure your retirement assets last as long as you do! Contributing
\nto a mixture of retirement accounts can
\nhelp accomplish this goal.<\/p>\n

Rules of thumb: Contribution hierarchy:<\/p>\n

1. If your employer offers you a match on retirement
\nplan contributions, always try to contribute
\nto the match. For example, if your employer will
\nmatch your contributions up to 3 percent of your
\nsalary, try to contribute 3 percent. Regardless of
\nthe taxation in this account, where else will you
\nbe able to double the value of your contribution in
\none year? Take the free money.<\/p>\n

2. Once you’ve contributed to the match,
\ncontribute to a Roth IRA if you’re eligible. Your
\ncontributions to a Roth IRA can be up to $5,500
\nwith an extra $1,000 as a catch-up contribution
\nif you’re over age 50. Contribution limits are more
\nrestricted for Roth IRAs because the impact of taxfree
\ngrowth is so high. In short, the growth is money
\nthe government won’t be taxing in the future, so
\nit’s in the interest of the government to limit how
\nmuch you can contribute.<\/p>\n

3. If you’ve contributed to the match in your
\nemployer-sponsored plan, and you’ve maximized
\nyour eligible Roth IRA contributions, then you
\nshould consider contributing more to your employer-
\nsponsored tax-deferred plan. Contribution limits
\nrange from $12,500 (with a $3,000 catch-up) for
\nSIMPLE plans, to $18,000 (with a $6,000 catch-up)
\nfor 401(k)s, 403(b)s, 457 Deferred Compensation
\nplans, SARSEPs. Certain plans could even accept
\ncontributions as high as $210,000.<\/p>\n

Of course, these are just rules of thumb and you
\nshould be working closely with your financial advisor
\nand tax advisor to determine the most effective
\nway to save for your retirement while maximizing
\nand balancing tax-efficiency for today, and keeping
\nan eye on your needs in the future.<\/p>\n

Once retired, the actions you take today will help
\ndetermine whether your assets will be available to
\nsupport you for your lifetime.<\/p>\n

Photo Courtesy Sterling Manor Financial<\/p>\n","protected":false},"excerpt":{"rendered":"

Stephen Kyne, partner, Sterling Manor Financial, Saratoga Springs BY STEPHEN KYNE We’re smack dab in the middle of tax season, which means, for many of us, that we’re reviewing what actions we could have taken last year to improve…<\/p>\n","protected":false},"author":121,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9],"tags":[58,70],"class_list":["post-16374","post","type-post","status-publish","format-standard","hentry","category-business-reports","tag-business-reports","tag-financial"],"yoast_head":"\r\nBusiness Report: Basics Of Tax-Wise Retirement Savings - Saratoga Business Journal<\/title>\r\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\r\n<link rel=\"canonical\" href=\"https:\/\/www.saratoga.com\/saratogabusinessjournal\/2015\/03\/business-report-basics-of-tax-wise-retirement-savings\/\" \/>\r\n<meta property=\"og:locale\" content=\"en_US\" \/>\r\n<meta property=\"og:type\" content=\"article\" \/>\r\n<meta property=\"og:title\" content=\"Business Report: Basics Of Tax-Wise Retirement Savings - 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