Retirement Plan Contributions

Written by Jacey Harmon
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Retirement plan contributions can be made by either you or your employer depending on the type of plan you have. Retirement plan contributions may also be tax-deductible or not tax-deductible and flexible or very strict. The type of retirement plan you have will determine what type of contribution be made.

Tax Deductible Retirement Plan Contributions

Most retirement plan contributions are made into qualified retirement plans. Traditional IRAs, traditional and individual 401Ks and Keogh plans all have tax deductible retirement plan contributions. Contributions into traditional IRAs are made by you and are deducted from your income. Traditional 401K contributions are deducted automatically from your paycheck pre-tax whenever you get paid. Keogh plans are fully funded by employers and are a tax deductible expense for employers, as well.

Contributions into a Roth IRA are the only retirement plan contributions that are not tax deductible. With a Roth IRA, contributions are made post-tax and can be withdrawn at any time from the account tax and penalty free. In return for non tax deductible contributions, all earnings and dividends grow tax deferred and can be withdrawn tax free at retirement age.

Retirement plan contributions have limits that vary for different types of plans. Traditional and Roth IRAs have annual contribution limits of $3,000 every year ($3,500 if over age 50). Individual 401Ks have contribution limits as high as $41,000 annually in some cases. Traditional 401ks only have contribution limits up to $13,000. Keogh plans have contribution limits of $41,000 or 100 percent of net annual income, whichever is less.


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