Determing The Contribution Percentage Related To Retirement Accounts
The contribution percentage to retirement accounts is different depending on the plan. The contribution percentage to retirement accounts is called Annual Contribution percentage and it can vary each year. To determine how much you should contribute to your plan, use a SEP-IRA contribution calculator as the one available at http://personal.fidelity.com/. This Sep Ira calculator can be used if are self-employed or your business is not incorporated. As an employer, in order to estimate the contributions for your employees, just multiply the percentage you will get for yourself by their respective wages, as stated in their W-2. Contributions to retirement accounts are nondeductible, but earnings are accumulating tax-free. Annual contributions to a retirement account could not exceed the lesser of $7,500 or the individual's includible compensation. An individual could contribute to a retirement account regardless of the level of his or her income. All distributions from a retirement account after age 58, or in the event of death or disability, would be excluded from taxable income. For self-employed individuals, contributions to a retirement plan are based upon the net earnings of their business. The net earnings consist of the company's gross income less deductions for business expenses, salaries paid to non-owner employees, the employer's 50 percent of the Social Security tax, and-significantly-the employer's contribution to retirement plans on behalf of employees. Therefore, rather than receiving pre-tax contributions to the retirement account as a percentage of gross salary, like non-owner employees, the small business owner receives contributions as a smaller percentage of net earnings. Employing other people thus detracts from the owner's ability to build up a sizeable before-tax retirement account of his or her own. In the case of a SEP plan, the business owner's maximum annual contribution is reduced to 13.04 percent of income (compared to the 15 percent maximum that applies to non-owner employees), to a maximum of $25,500. With Roth IRA plans, you can contribute up to $4,000 a year or 100% of your earned income, whichever amount is less. In case you are married, you can contribute up to $8,000 or 100% of your combined income, whichever is less, between each spouse's IRAs. Workers age 50 and older can play "catch-up" with their retirement savings by contributing up to $1,000 a year over the maximum contribution limits.
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