By Forrest Friedow, Partner and Senior Financial Advisor, Larson Financial Group
Many of our clients utilize qualified accounts to fund their long-term accumulation goals. To take full advantage of these accounts, it is important to know the contribution limits and deadlines to fund the accounts and plan accordingly each year.
This is something you should review with your financial advisor annually, and for many this is best done in the final planning meeting of the current year for the upcoming year. This planning process will help you budget appropriately and not miss out on any of the benefits offered by the plans.
The IRS will periodically adjust the contribution limits to certain qualified accounts for inflation; however, the contribution deadlines do remain static and generally align with the calendar year or a tax filing deadline. While some accounts allow you to make contributions up to your filing deadline including extensions, this is not the case for all qualified accounts.
Here’s a short list of some of the more common accounts:
- IRA/Roth IRA: The current contribution limit to an IRA or Roth IRA is $6,000 per year, with an additional $1,000 catch-up contribution for those 50 and over. The deadline to make these contributions is your personal tax filing deadline, on or about April 15 of the following calendar year. The IRS does not allow an individual to make their IRA/Roth IRA contribution later if they file a personal extension.
- 403b/401k: The current employee deferral limit is $19,000 per year, with a $6,000 catch-up contribution for those 50 and over. In most cases, the employee deferral is withheld from W2 earnings and contributed to the respective account on a calendar year basis. If you are starting in practice after the first withholding of deferrals in a given year and want to maximize your contribution that year, you will need to make the full contribution in the remaining months prior to December 31. For those doctors who are both the employee and employer, an additional $37,000 may be contributed for a combined contribution of $56,000—or $62,000 for those 50 and over. The employer profit sharing contribution may be contributed up to the tax filing deadline including extensions.
- 457b: The current employee deferral limit is $19,000 per year, with a $6,000 catch-up contribution for those 50 and over. If you choose to contribute, the deferrals will be withheld from your earnings and must be done in the calendar year.
These are just a few of the common qualified plans, including current contribution limits and deadlines. For doctors who have more complex plans, there are various other qualified plans available with much higher contribution limits and flexibility in funding to tax filing deadlines including extensions.
Regardless of your employment situation, I highly recommend you budget for the options available to you and learn more about the plan offerings from your employer or offerings you can provide to yourself and your employees.