Saving for the future has several benefits. You pay less in taxes, ensure your retirement years are secure and qualify for tax breaks. The simplest way to realize the full advantages of your retirement account is to maximize your retirement contributions.
If you have a 401(k) plan, you can contribute up to $18,000 in 2015. The limit was raised by $500 in 2014. If you maxed out your 401(k) in 2014, then you can adjust your monthly contributions to a higher contribution threshold.
Eligibility for a Roth IRA phases out for taxpayers with income between $116,00 and $131,000 ($183,000-$193,000 for couples). Couples earning more than this limit can convert a traditional IRA to a Roth IRA.
You do not pay taxes on your contributions to a 401(k), but you’re taxed on withdrawals. However, on Roth IRA, you pay taxes at the time of making the contribution and make tax-free withdrawals later. Depending on which retirement account you have, you can plan your contributions based on how you are taxed. If you prefer paying taxes at a known tax rate, then the Roth IRA is preferable. However, if you want tax-free growth, a traditional IRA or a 401(k) is the retirement account to choose.
You can contribute up to a maximum of $5,500 to an IRA in 2015. If you are age 50 years or older, the maximum contribution limit is $6,500. One restriction to an IRA is that if you have a workplace retirement plan and a modified adjusted gross income (AGI) between $61,000 and $71,000 for individuals ($98,000-$118,000 for couples) in 2015, then you cannot make a full deduction on the contribution. In some cases, you cannot even take a partial deduction.
Also, even if you don’t have a workplace retirement plan but your spouse does, you cannot deduct the full amount of your contribution to an IRA if your income together is over $183,000. If your income together is over $193,000, then you cannot take any deduction.