Five Things Plan Participants Should Do Before the End of the Year
There are only a few weeks left for plan participants to make a 401(k) contribution for 2015. The deadline is also quickly approaching for retirees to take required minimum distributions from their retirement accounts. Below are some points to consider before the end of the year.
1) Make Additional 401(k) Contributions:
Workers age 49 and younger can contribute up to $18,000 to their 401(k) plan in 2015. Contributions are typically due by Dec. 31, but it’s a good idea to avoid waiting until the last minute. Most providers require a lead time of at least one paycheck and sometimes two in order to ensure all 401k contributions are allocated timely. In some cases, you can also allocate part or all of a year-end bonus to your 401(k) account and avoid the extra tax bill on it. Workers age 50 and older can contribute an extra $6,000 to a 401(k) account as a catch-up contribution in 2015, for a total of $24,000.
2) Take Your Required Minimum distributions:
Distributions from traditional 401(k) and IRA accounts are required after age 70½, and income tax will be due on each withdrawal. The penalty for missing a distribution is a 50 percent tax on the amount that should have been withdrawn. You have until April 1 of the year after you turn 70½ to take your first required minimum distributions, but subsequent distributions are due by Dec. 31 each year. And if you delay your first distribution until April, you will then need to take two distributions in the same year, which could result in an unusually high tax bill. If you have to take two distributions in that year, you may want to be careful because it could push you up into a higher tax bracket. There is an exemption from the penalty for participants who continue to work past 70½.
3) Reset Your Contributions for 2016:
For 2016, the maximum 401(k) contribution remains at $18,000, and the catch-up contribution limit remains at $6,000. Consider setting your periodic 401(k) contributions at an amount that will dollar cost average your contributions throughout the year and get you to reach the maximum limit by the end of the year. Also make sure you take full advantage of your 401(k), especially if there is an employer match.
4) Review your beneficiary elections:
Review your current beneficiary elections to ensure they are up to date with any changes in your life events.
5) Review Your Investments:
Did you set up your allocation years ago? Does it still fit your risk, time horizon and objectives?