Retirement Insights Tip #5: The Power of Tax Deferred Compounding

By | July 22nd, 2019|irs, retirement|

Deferring the tax on investment earnings, such as dividends, interest or capital gains, may help accumulate more after-tax wealth over time than earning the same return in a taxable account. This is known as tax-deferred compounding. This chart shows an initial $100,000 after-tax investment in either a taxable or tax-deferred account that earns a 6% return (assumed to be subject to ordinary income taxes). Assuming an income tax rate of 24%, the value of the tax-deferred account (net of taxes owed) after 30 years accumulates over $79,000 more than if the investment return had been taxed 24% each year.

Choosing to shelter investment growth in tax-deferred accounts over the long term may result in more wealth for retirement. The value of tax deferral in this example is equivalent to a .7% higher annual return over the time period. TAXES CAN WAIT!

IRS Boosts Contribution Limits for 2019!

By | November 6th, 2018|irs, retirement|

 

Here’s a great New Year’s Resolution for 2019Save more in your retirement accounts!

The IRS is on board! They recently announced new contribution limits for 401(k) participants and IRA account holders. Here’s how much you can sock away toward retirement in 2019:

  • In 2019, you will be able to save up to $19,000 in your 401(k) or 403(b), up from $18,500 in 2018.
  • The limit for individual retirement accounts will be $6,000 – up from $5,500 this year
  • Small business owners – Solo 401(k) and SEP IRA limits will increase $1,000 to $56,000 in 2019
  • The catch-up contribution limits for those 50 and over remain unchanged at $1,000 for IRA’s and $6,000 employee plans.

In addition, the income ranges that determine eligibility for…
deductible contributions to traditional IRA’s
Roth IRA’s
…have all increased as follows:

  • Single Taxpayer covered by a workplace retirement plan – $64k-$74k
  • Married Filing jointly, where contributor is covered by a workplace retirement plan – phase out range for a deductible contribution up to $103k-$123k
  • IRA contributor not covered by a plan at work, but is married to someone who is covered – range = $193k-203k
  • Taxpayers making Roth contributions have a new phase out range of $122k-$137k for singles and heads of household
  • Married couples filing jointly – Roth contributions phase out range – $193k-$203k

So here’s to 2019! The year you accomplished your savings resolution, your tax bill got lower and your retirement savings got higher!

As always, we are here to help! Contact us for help navigating the numbers or setting up a plan.

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