Commentary

MONEY – Part II

By Andrew Schwartz, CPA

Miss Part I of this series: MONEY – Find Some Money 

Save Some Money:

As we wrote in ourNovember 2012 Newsletter,  the retirement limits have increased for 2012.  The maximum amount of money you can  contribute into your 401k or 403b account through salary deferrals is now $17k.   Anyone 50 or older by 12/31/2012 can contribute an additional $5,500.  Are  you on track to max out your 401k or 403b plan this year? 

Perhaps you are not in a financial  position to put away the full $17k this year.  If your employer matches your  salary deferrals, do whatever you can to contribute enough money to max out the  matching contribution.  Otherwise, you are leaving some of your employer’s  money on the  table.

Businesses, including self-employed  individuals, can also put away more money on behalf of their owners and staff in  2012.  The  max that a business can contribute for an employee, or a self-employed person  can contribute into a SEP IRA or Solo 401k, is higher by $1k for 2012 – up to  $50k.

And as the health insurance  industry continues to evolve, consider contributing money to a Health Savings Accounts (HSA) if  you have a qualifying high-deductible plan.  For 2011, single individuals can  contribute $3,050 and families can contribute up to $6,150.  Anyone 55 or  older can contribute an additional $1,000. You have until 4/15/2012 to fully  fund your HSA for 2011.

How great are HSA’s?

  • Money contributed to an HSA is pre-tax.
  • Money within the HSA grows tax-deferred.
  • Money withdrawn from an HSA to pay for your family’s healthcare costs is tax-free.
  • The money in the HSA is your money, and any money remaining in an HSA once you turn 65 can be used to supplement your retirement income.

Put Away Some  Money for College:

If you have children,  grandchildren, or other people who you plan to help pay for college,  contributing money to a 529 Account on behalf of each person is a great way to  earmark that money.   While you contribute post-tax dollars into a 529 plan, the money grows tax-free as  long as it’s ultimately used for college.  Please note that many states do  offer a tax break for taxpayers who contribute to 529 plans.

Another advantage of these  accounts is that you can take back all the money sitting in a 529 account at any  time down the road.  Expect to owe taxes plus a 10% penalty on the earnings  portion of any money withdrawn that isn’t used for college, however.

Check in tomorrow for “Money – Part III: Spend Some and Give Some Money”

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