Don’t Miss the 401 (k) Boat

According to Fidelity Investments, the average 401(k) hit $91,000 last year – that’s 30% more than in 2011!

Fidelity attributes the increase to the rising stock market and an increase in contributions by both workers and their employers. That’s a lot of money being socked away before Uncle Sam can get his slimy hands on it. If you haven’t already, you need to get in on this.

Remember, you can contribute up to $18,000 this year – all before taxes.

And if you are age 50 or older, you can add on another pre-tax $6,000 catch-up contribution. Just make sure you tell your HR department. If you don’t, the payroll department will stop funding your 401(k) when your contributions hit $18,000. Then you lose that $6,000 pre-tax contribution forever – there’s no make-up on that. So don’t let that happen.

And if your employer offers a 401(k) contribution match, shame on you if you leave that free money on the table. That means if your employer offers a 6% match, you better be contributing at least 6% of your salary.

If you don’t have a 401(k) at work, then have automatic withdrawals sent to an IRA.

There are two main kinds of IRAs -- traditional and Roth. With a traditional IRA, you contribute pre-tax money as well (you get a deduction for the amount on your tax return as opposed to dodging payroll taxes with your 401(k) contribution).

The money grows in your account and is taxed at your ordinary income tax rate when you withdraw it in retirement.

With a Roth IRA, you contribute post-tax money – so no tax deduction now. But it grows in the account until you withdraw it in retirement -- tax free.

The 2015 IRA contribution limit for both -- $5,500 -- plus an extra $1,000 catch-up contribution for those age 50 or older.

There are income limits on who can contribute to IRAs.  If you make more than $193,000 per year, you can’t contribute, but be sure to check irs.gov for the eligibility requirements on both.

You can establish your IRA at any mutual fund house, but some have big minimum contributions requirements, so read the fine print.

The good news is, many of them don’t. If you have an amount automatically transferred to your IRA on a regular basis, you can often choose the amount.

For instance, Vanguard will take as little as $50 per transfer. TIAA-CREF TIAA-CREFwill allow monthly or bi-monthly withdrawals of $100 per deposit.  That’s $25 a week if you do monthly! C’mon!  You can do that!!! Fidelity’s automatic minimum amounts (https://www.fidelity.com/) are just as low.

So do something.  And if you don’t have a 401(k) and make too much for the IRAs, then just have money automatically transferred into a mutual fund account.

E-mail Tracy your personal finance and tax questions at tracytaxtips@gmail.com.