By Julie Fletcher, Certified Financial Planner™ at Sharkey, Howes & Javer

1. Even if you are “maxing out” your retirement plan contributions, is it enough?

The retirement plan contribution limits are set by IRS guidelines and reviewed each year. However, the IRS is not a personal financial advisor and does not know how much you need to be saving to meet your financial goals. Just because you are “maxing out” your plan does not necessarily mean you are saving enough. 

Many people choose to contribute to the company 401(k) plan, which will allow you to contribute up to $18,000 in 2015 (with an additional $6,000 catch-up for those over age 50). A 401(k) plan allows an employee to contribute a portion of his/her salary on a pre-tax basis to a retirement savings account. Taxes are not paid until money is withdrawn from the account.

Beyond the company retirement plan, another popular choice is contributing to a Traditional or Roth IRA, which will allow you to contribute up to $5,500 (with an additional $1,000 catch-up for those over age 50). When you contribute money to a Traditional IRA, you typically are making pre-tax contributions. Taxes are not paid until money is withdrawn from the account. However, a Roth IRA is opposite. The contributions are made after-tax and the money is withdrawn tax-free from the account (both the contributions AND the growth). Warning: Contributions for both Traditional and Roth IRA’s can be limited due to your adjusted gross income. Be sure to consult your tax advisor.

If you are a business owner with no employees, you could consider contributing to a Solo (“Solo” is slang or shorthand for one-participant) Traditional 401(k) with profit-sharing provisions. Total contributions in the participants account are limited in 2015 to $53,000 (with an additional $6,000 catch-up for those over age 50).

If retirement plan contributions aren’t enough to reach your goals, you could also create a brokerage account to begin after-tax investing for retirement. There are no limitations to contributions and you could receive preferential capital-gain tax treatment. Although a brokerage account can be “ear-marked” for retirement, the account can technically be used for any purpose and does not have early withdrawal penalties. Taxes are paid “as you go” each year as reported on a 1099. Capital gains could potentially be offset by capital losses. Also, investment expenses (fees/commissions) could be deductible on your tax return.

2. Are you paying too much in taxes?

Meet with your tax advisor throughout the year to take advantage of tax strategies. Your tax advisor will help ensure you are taking the appropriate deductions for your personal and/or business tax return. A few items to review with your tax advisor throughout the year:

• Are you paying more into FICA than necessary? FICA is the payroll tax paid by both employees and employers to fund Social Security and Medicare (in 2015 the maximum amount of earnings subject to FICA is $118,500).
• Have you properly explored a home refinance option? If you are paying more than 5% in interest on your mortgage, it could be beneficial to explore ways to reduce your monthly payment dependent upon the number of years remaining on the mortgage and how long you plan to remain in the home.
• Would a year-end charitable tax deduction benefit you and/or your business? Your tax advisor will help you determine how a charitable contribution would affect your overall tax liability.
• Is your small business receiving Affordable Care Act (“ACA”) tax credits for employer-paid health insurance premiums? You can learn more about ACA at the U.S. Department of Health & Human Services website (www.hhs.gov/heathcare).
• Is there a need for new business equipment? Purchasing equipment for your business can have tax advantages if structured appropriately (Section 179 of the IRS regulations).

 3. Are your hard-earned business and personal assets protected?

You have worked extremely hard to build your personal and/or business net worth. Be sure not to leave any gaps in your insurance coverage that would leave you vulnerable. Potential gaps include premature death, disability, health, liability, business, car and homeowner’s insurance. Having the proper insurance in place is essential for your protection. During your insurance coverage review, revisit the Affordable Care Act and how it will affect your individual or group health insurance in 2015.

4. Where is your investment advice coming from?

Are your friends, family, or co-workers your main source of investment advice? Are you acting on “hot stock” tips or investing in your friend’s investment real estate? Have you thoroughly researched these investment ideas to ensure you are aware of all the pros and cons? Almost every investment has risks. Remember, just because investment advice is “free” does not mean it is appropriate for your personal situation.

Cheers to you and your financial health in 2015!

To schedule a complimentary consultation with one of the Certified Financial Planner™ professionals at Sharkey, Howes & Javer, please call 303-639-5100 or visit shwj.com.