IRS Releases 2014 Limits for IRA's, 401(k) and Other Retirement Plans
The IRS released the 2014 limits for contribution to your IRA, 401(k) or other profit sharing plans this week.
401(k) Contribution limits
For 2014, the contribution limit for 401(k) plans remains at $17,500. The catch-up contribution for those over 50 also remains unchanged at $5,500, giving them a total contribution of $23,000.
IRA Contribution limits
The IRA contribution limit remains for IRA’s remains at $5,500 for 2014. The catch-up contribution also remains at $1,000, for a total of $6,500 for those over 50.
Business Owner and Executive Compensation
For business owners and executives, the maximum compensation that can be considered for the purposes of calculating maximum deferral amounts is $260,000, up from $255,000 in 2013.
Anyone earning more than $115,000 is considered a highly compensated employee (HCE) for top-heavy testing purposes. For key employees (1% or greater ownership), the limit remains at $150,000.
Social Security (FICA) Limits
The first $117,000 of your wages will be subject to 6.2% in FICA taxes for a total of $7,254.00. Your employer will also pay $7,254.00, and self-employed business owners pay both of those for a total of $14,508.00.
The Medicare tax rate remains at 1.45% with no cap. Business owners pay 2.90%. As in the past, there is no income limit on Medicare so the tax is unlimited.
Retirement Plans for Business Owners
If you’re a business owner, a well-designed retirement plan can help you defer a significant amount of compensation for yourself, your family, and other owners or executives. Cookie-cutter plans don’t always give you the best bang for your buck because they use one-size-fits-all rules. A well-designed retirement plan looks at the overall wealth picture of owners and key executives, as well as retirement objectives. Poorly-designed retirement plans sometimes end up becoming stagnant because the owners can’t afford to make the total contributions necessary to stay in compliance. If you’re not completely happy with your retirement plan please contact us or call us at 925-462-8005 to discuss your options. You may be eligible for a free fiduciary review of your plan by an Accredited Investment Fiduciary® on staff.
Gary E.D. Alt, AIF®, CFP® is a co-founder and financial advisor of Monterey Private Wealth in California. www.MontereyPrivateWealth.com