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Retirement is one of the biggest life events from both a personal and a financial perspective, but it can also be the most confusing if you don’t have the right guidance. When structured and implemented correctly, the following plans can help reduce current year taxes while financially securing a future full of adventure for you and your loved ones.

Individual Retirement Arrangements (IRAs)

Description: A type of retirement account that allows you to contribute pre-tax dollars and allows the money to grow tax-deferred. That means the amounts in your IRA are not taxed until distributed, this includes any earnings and gains.


  • For 2016 Contributions are limited to $5,500 ($6,500 if you are 50 or older).
  • Any excess contributions are subject to an additional tax of 6%. You can avoid this tax by withdrawing the excess contribution and any income earned from that contribution by the due date of your tax return.
  • Since contributions are pre-tax, they effectively lower your taxable income.


  • Distributions that occur before the IRA owner reaches age 59 1/2 are subject to a 10% early distribution penalty unless used for qualifying reasons.
  • Distributions after age 59 1/2 are subject to income tax only.
  • Required minimum distributions must begin by April 1st of  the year following the calendar year the owner reaches age 70 1/2.
  • Distributions, including any gains on the investments, are taxed at your income tax rates in the year of distribution.

Tax Deduction

  • If you are covered by a retirement plan at work for 2016 your deduction may be limited if your income is over a certain threshold.
  • If you are not covered by a retirement plan at work then you can take the full deduction if you’re married and your spouse is covered by a plan at work, there are limitations to consider.

Roth IRAs


A type of retirement account that allows you to contribute after-tax dollars in order to take tax-free distributions in the future. These are particularly useful for younger taxpayers who expect to be in a higher tax bracket when they start taking distributions.


  • For 2016 Contributions are limited to $5,500 ($6,500 if you are 50 or older), same as a traditional IRA, but it can be limited based on your modified adjusted gross income.
  • You can still make contributions to a Roth IRA after age 70 1/2.


  • If you satisfy the requirements, qualified distributions and the income are tax-free.
  • A 10% tax on early distributions (prior to age 59 1/2) will apply.
  • There is no required minimum distribution during the lifetime of the owner, but after death there are requirements placed on distributions.
  • There is no tax deduction for contributions made to a Roth IRA

401(k) Plans

Description: A retirement plan in which contributions are deducted directly from your paycheck, before taxes, therefore lowering your taxable income.


  • For 2016 the maximum contribution to a 401(k) is $18,000.
  • If you are 50 and over you can make an additional $6,000 contribution to “catch-up” your retirement account.
  • Employer often matches a percentage of 401(k) contributions.


  • Distributions are taxable since they were put into the account tax-free.
  • Distributions can begin at age 59 1/2 and the required minimum distributions begin on the later of April 1st the year following the calendar year you reach age 70 1/2 or the year you retire.
  • There is a 10% additional tax on the distributions if taken before age 59 1/2.
  • Certain circumstances result in penalty free distributions before age 59.
  • Additionally you can have penalty-free withdrawals if you have a qualifying disability.
  • Rollover amounts from your 401(k) plan are not taxable if the distribution is contributed to another qualified retirement plan or traditional IRA within 60 days.

Solo 401(k) Plans

Description: A traditional 401(k) plan covering a business owner with no employees, or that person and his or her spouse. These plans have the same rules and requirements as any other 401(k) plan.


  • The business owner wears two hats in a 401(k) plan: employee and employer. Contributions can be made to the plan in both capacities. Total contributions to the account (not counting catch-up contributions for those age 50 and over) cannot exceed $53,000.


  • Same rules as a traditional 401(k)

403(b) Plans

Description: A retirement plan that is offered to certain employees of public schools, employees of certain tax-exempt organizations, and certain ministers.


  • Elective deferrals: your employer can withhold money from your paycheck and you do not pay income tax on these contributions until they are withdrawn.
  • You do not generally report contributions on your tax return, but it will be reported on your W-2
  • Maximum contribution for 2016 is $18,000.
  • Employees age 50 and older can make catch-up contributions up to $6,000; this is in addition to the $53,000 maximum contribution discussed later.
  • Employees with 15+ years of service can also make catch-up contributions of $3,000 in addition to the $6,000. The total catch up contribution if you meet both requirements is a maximum of $9,000.
  • The total contribution limit (including employer contributions) is $53,000 for 2016.
  • If you meet all the requirements and the employer contributes the maximum amount you can have a total contribution of $59,000. The ordering rules are as follows:

o   Your standard $18,000 contribution

o   $3,000 catch-up contribution for 15+ years of service

o   $32,000 contribution from your employer (this puts you at the $53,000 limit)

o   An additional $6,000 for employees ages 50+


  • Distributions cannot be taken without the 10% penalty until the employee reaches age 59 1/2 or meets certain requirements for early distributions.
  • The required minimum distributions begin on the later of April 1st the year following the calendar year you reach age 70 1/2 or the year you retire.
  • If the distributions are not made by December 31st of that year there is a 50% penalty assessed on the amount not distributed.

SEP Plans (Simplified Employee Pension)

Description: This retirement plan is an option for a self-employed individual with a substantial amount of self-employment income.


  • 25% of self-employment income (reduced by the deductible portion of your SE tax and the amount of your SEP contribution) up to $53,000 for 2016.
  • Contributions must be made in cash, no property allowed.
  • The contribution deadline is the extended due date of the return.


  • Same distribution rules as a traditional IRA.

By choosing the best plan you can effectively mitigate current and future tax liability. The above only provides a brief overview of the options available and limitations of each. Contact your L&B professional for more information.

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