Contribute to your retirement accounts

My running joke is that my ultimate retirement plan is winning the lottery. That's not likely to happen, so I still contribute as much as I can each year to my nest egg.

Today's Daily Tax Tip is that you do the same.

Self-employment retirement plan choices: If you're self-employed like me, you've got several options: SEP (Simplified Employee Pension) IRA, Solo 401(k) or SIMPLE (Savings Incentive Match Plan for Employees) IRA. 

The plans vary depending on earnings amounts, how much you can put into them, when they must be opened, how easy (or difficult) they are to administer, so check them out carefully before selecting one. But do choose an account. Not only can they help cut your current tax bills while you're working, they'll make it easier for you to retire when and how you want in the future.

Every major investment company offers comparisons of the various plans. The following is list not an endorsement, but just suggestions for you to get ideas of what's available:

• American Century
• Fidelity
• Wells Fargo
• Vanguard
• BCM Advisors

A Keogh plan also is an option. These retirement vehicles offer the self-employed the possibility of significantly higher contribution limits, but they also are more complex and usually involve higher costs for the owner.

Remember, you can start a retirement plan for a self-employment enterprise even if it's not your full-time source of income.

If you're an employee, don't neglect your company's 401(k) plan. It's an easy way to put aside retirement money and simultaneously reduce your tax bill a bit.

And, of course, there are IRAs, traditional or Roth versions.

The maximum you can put into either type of IRA is $5,000 for both 2011 and 2012 tax years. Folks age 50 or older can contribute an additonal $1,000 each tax year to their IRAs.

Annual retirement plan dollar limits: The IRS adjusts the limints on contributions and earnings amount for retirement plan contributions each year.

For the 2011 tax year, retirement plan contribution limits are:

• The elective deferral (contribution) limit for employees who participate in section 401(k), 403(b), or 457(b) plans, and the federal government’s Thrift Savings Plan remains unchanged at $16,500.
• The catch-up contribution limit of employee plans for those aged 50 and over remains unchanged at $5,500.
• The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are active participants in  an employer-sponsored retirement plan and have modified adjusted gross incomes (AGI) between $56,000 and $66,000, unchanged from 2010. For married couples filing jointly, in which the spouse who makes the IRA contribution is an active participant in an employer-sponsored retirement plan, the income phase-out range is $90,000 to $110,000, up from $89,000 to $109,000. For an IRA contributor who is not an active participant in an employer-sponsored retirement plan and is married to someone who is an active participant, the deduction is phased out if the couple’s income is between $169,000 and $179,000, up from $167,000 and $177,000.
• The AGI phase-out range for taxpayers making contributions to a Roth IRA is $169,000 to 179,000 for married couples filing jointly, up from $167,000 to $177,000 in 2010. For singles and heads of household, the income phase-out range is $107,000 to $122,000, up from $105,000 to $120,000. For a married individual filing a separate return who is an active participant in an employer-sponsored retirement plan, the phase-out range remains $0 to $10,000.
• The AGI limit for the saver’s credit (also known as the retirement savings contributions credit) for low-and moderate-income workers is $56,500 for married couples filing jointly, up from $55,500 in 2010; $42,375 for heads of household, up from $41,625; and $28,250 for married individuals filing separately and for singles, up from $27,750.

For the 2012 tax year, retirement plan contribution limits are:

• The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $16,500 to $17,000.
• The catch-up contribution limit of employee plans for those aged 50 and over remains unchanged at $5,500.
  
• The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $58,000 and $68,000, up from $56,000 and $66,000 in 2011.  For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $92,000 to $112,000, up from $90,000 to $110,000.  For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $173,000 and $183,000, up from $169,000 and $179,000.
  
• The AGI phase-out range for taxpayers making contributions to a Roth IRA is $173,000 to $183,000 for married couples filing jointly, up from $169,000 to $179,000 in 2011.  For singles and heads of household, the income phase-out range is $110,000 to $125,000, up from $107,000 to $122,000.  For a married individual filing a separate return who is covered by a retirement plan at work, the phase-out range remains $0 to $10,000.
  
• The AGI limit for the saver’s credit (also known as the retirement savings contributions credit) for low-and moderate-income workers is $57,500 for married couples filing jointly, up from $56,500 in 2011; $43,125 for heads of household, up from $42,375; and $28,750 for married individuals filing separately and for singles, up from $28,250.

Contribution timing: Most retirement plans let you contribute money for the preceding tax year by the April filing deadline.

Self-employment contributions for the prior year can be put off as late as the October tax filing extension deadline.

But the sooner you put money into your retirement account, regardless of which type it is, the sooner it starts earning money. Compounding is your best friend and it will help you retire on the timetable you choose.

You also might find these items of interest:

• Time for retirement, contributions that is
• Your boss is worried about your retirement, too
• Handy retirement plan rollover chart