Top Off Tax-Advantaged Accounts by Year's End
Stash more cash in retirement and college savings plans.
While the year is winding down, there’s still time to top off tax-advantaged accounts.
Retirement savings plans. In 2016, you can stash up to $18,000 in your 401(k) or similar workplace plan, or $24,000 if you’re 50 or older by the end of the year. Contributions aren’t included in your taxable income, so this is one of the most effective ways to lower your 2016 tax bill.
529 college-savings plans. These state-sponsored plans allow you to save for a child’s college education. Earnings are tax-free as long as the money is used for qualified educational expenses. Contributions won’t reduce your federal tax bill, but 32 states allow you to deduct all or part of your contribution on your state return. In New York, for example, a married couple can deduct contributions of up to $10,000 to the state’s 529 plan. (See The Best List for our favorite 529 plans.)
ABLE accounts. These plans, created in 2014, are designed to allow parents and others to save for a disabled young person’s future needs, such as assisted living, home modification and special wheelchairs. Beneficiaries must have developed a qualifying disability before age 26. Up to $14,000 a year can be contributed to the owner’s account. As with 529 plans, there’s no federal deduction, but states can okay a break for their residents. Nebraskans, for example, can deduct contributions of up to $10,000. Only four states have plans up and running, but more are in the works. You can find more information about ABLE accounts at the ABLE National Resource Center, www.ablenrc.org.