Holiday Cheer Part 2

Last week we began to identify ways to save or make money before the year-end. We started with taxable portfolio maneuvers that might help minimize capital gains distributions and that could help you take advantage of losing positions that are hanging around. Today it’s time to use Uncle Sam to help with retirement planning.

You have probably read all of the horrible statistics about how woefully underfunded retirement accounts are. While that is true, I am starting to see quite a bit of progress. Now when people call the radio show or come into our offices, I notice that they usually start by talking about their retirement accounts. That’s a good thing because the statistics about how long we will be retired are staggering. According to the National Center for Health Statistics, the average American who reaches 65 can expect to live nearly 19 more years, which is up about 35% since 1950! But the really wild thing to consider is that 19 years is an average, which means that many of us will live far longer.

Clearly longevity is the major issue facing folks who are planning for retirement, which means that contributing to your retirement account is becoming not just “something you ought to do” but an absolute necessity. Because many of the rules around retirement contributions are based on the calendar, you may only have these few weeks to get going—so let’s start with the basics.

You should try to contribute the maximum to your employer-sponsored plans. Some employers will allow you to alter your contribution in order to max-out by year-end. The limits for 2007 are as follows;

-401(k)/403(b)/457: $15,500 (if you are over age 50, you can make a $5,000 catch-up contribution)

-SIMPLE-IRA: $10,500 (if you are over age 50, you can make a $2,500 catch-up contribution)
Profit Sharing/Money Purchase/Keogh: $45,000

-IRA/Roth IRA: $4,000 (if you are over age 50, you can make a $1,000 catch-up contribution).

Remember, you do not need to make the IRA or Roth contribution until tax-filing time, but you might as well do it now, while you are thinking about it!

If you are self-employed and do not yet have a retirement plan, you need to establish one by December 31, 2007. Note: unlike IRA’s, these plans must be established by calendar year-end, not by tax filing deadline. Finally, if you are going to get a raise for 2008 and are not yet maxing out your plan, you should immediately change your contribution level.

With all of this found money, next week, we’re going to discuss how to give it away—a little more in keeping with the holiday spirit!