Tax penalties can be avoided and tax breaks enjoyed if deadlines related to retirement accounts are met. A few retirement accounts have deadlines at end of year for needed distributions and contributions. A few permits you to make deposits which will be counted for the 2016 tax year.
Do catch-up contributions
This is for anyone who is 50 years or older. They can make catch up contributions for the 401(k). It is worth an extra $6,000. It means an older employed individual can defer the payment of income tax on a maximum amount of $24,000 saved for retirement. Catch up contributions enables the worker to contribute larger sums of money. It is important that you keep track of your savings.
Contribute towards 401(k)
Calendar year ends mean you will have to contribute to your 401(k). A tax deduction to a maximum of $18,000 can be claimed by you in case you hold a 401(k) account. You do not have to pay any tax on this money. Taxes are applicable only if you withdraw money from his account. According to Mike Palmer of Ark Royal Wealth Management, it is important that you maximize employer contribution to the 401(k) retirement scheme. You should contribute the threshold amount needed to get the total contribution payable by the employer.
Minimum distributions are important
A minimum distribution is required if an individual crosses 70 years of age. This is to be taken from the standard 401(k) and also the standard IRAs within December 31, 2016. Each withdrawal implies income tax. Penalty for missing this needed minimum distribution comes to about 50 percent of amount which should be withdrawn. This is over the due income tax.
Claim saver’s credit
This is applicable if a person’s adjusted gross income comes to less than $30,350 in 2016. The amount jumps up to $61,500 for couples. You should also save in 401(k) scheme by calendar year end. You can also save in an IRA. Doing any one of them will help you to claim saver’s credit applicable on the 2016 tax return. This tax credit comes anything between 10 percent and 50 percent of total amount you get to save in your retirement account. For individuals, it comes to $2,000 and for couples $4,000. Do note that any person below 18 years of age cannot claim this credit. Also excluded are full time students and individuals financially dependent on others.