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Minimize Taxes, Maximize Your Future
Dear Jeff:
Next year I shall be receiving a lump sum of approximately $10,000 from the state of Alaska for my service in the Alaska National Guard. This check will be taxed, of course. I want to protect it from taxation, if I could, and put it towards some sort of retirement plan to which I would add approximately $250 - $300 a month for my wife and myself. I am now 50 years old. What do you recommend? Regards, Bill Jeff Says:
I really like the fact that you are thinking about saving the money you have earned rather than spending it. $10,000 invested for ten or fifteen years could really add up for you.
The problem is how to get it into a retirement plan. A traditional individual retirement account (IRA) is very easy to set up, but the problem is that you can only contribute $2,000. You have the same contribution limitation with a Roth IRA. To make matters worse, you cannot contribute $2,000 to each because contributions to all IRAs are aggregated. For example, you could contribute $1,500 to a traditional IRA and $500 to a Roth.
If you are employed and your employer has a retirement plan, then you should maximize your retirement plan contributions. Calculate how much you want to contribute next year and then ask your benefits director or payroll manager to make the appropriate deduction from your pay. Keep in mind that each of the different types of plans that exist today have a different contribution limitation. Ask about the specifics of your plan.
If you are self-employed, then you could consider establishing a retirement plan for your business. You have a great selection available to choose from, but each has advantages and disadvantages. I suggest working with a retirement plan expert in your area. Guidance from an expert today could really benefit you in the long run.
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