401(k) Plans

A 401(k) plan allows you to allocate a portion of your salary to an account where the funds can grow on a tax-deferred basis.  In addition, your company may provide matching contributions based on a percentage of your salary.

Year-end strategy: Adjust your 401(k) plan contributions to increase your retirement nest egg.  For instance, you might defer more dollars to your 401(k) account after you clear the 2009 Social Security wage base of $106,800.  This will result in little or no reduction in your take-home pay.  As with other tax-qualified retirement plans, a 401(k) plan must meet strict nondiscrimination requirements to maintain its tax-favored status.  There is also an annual dollar cap on elective deferrals.  For 2009, you can defer a maximum of $16,500 to your account.

Tip:   If you’re age 50 or over, you can add a “catch-up contribution” of $5,500.  Thus, the total maximum annual deferral for taxpayers age 50 or over is $22,000.

Stay tuned for more 2009 Year End Tax Tips

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