Personal Finance

Money Matters: Advice for setting up a retirement account at end of year

Q. I have a small business, and I know it’s a bit late in the year, but is there still time for me to set up a 401(k) plan for 2014? I’ve made more money than I anticipated and would love to shelter more than the measly amounts allowed for IRAs from taxes. If I do have a 401(k), can my wife still make an IRA contribution?

A. If you could find someone willing to establish a plan between now and Dec. 31 and your payroll is structured to allow funding for 2014, it may be possible. Qualified plans, such as a 401(k) must be established prior to year end and if it’s a safe harbor plan, it would need to have been established by Oct. 1 for 2014 contributions. Employee contributions must be withheld from pay by Dec. 31 and remitted to the investment firm as soon as reasonably possible. Employer contributions must be made by the employer’s tax return due date including extensions. Employee contribution limits for 2014 are $17,500 in salary deferrals, or $23,000 if age 50 or older. For 2015, the employee contribution limit is increased by $500 ($18,000) and the catch-up provision is increased by this same amount ($6,000).

If you are under age 50 and have compensation of $70,000 or more, you can fund a Simplified Employee Pension Individual Retirement Arrangement with higher dollar amounts or close to the same amounts as allowed with a 401(k). The deadline to establish and fund a SEP IRA is the due date of the business’ tax return, including extensions. This plan will allow you to take your time in determining what investment or financial firm you wish to use for your retirement plan. You have until April 15, or Oct. 15 if you file an extension, to completely fund the plan for 2014. The SEP IRA is fairly easy to administer and would allow you to contribute 25 percent of each employee’s compensation up to maximum contribution of $52,000. You can contribute the maximum percentage of your compensation to your SEP account, but if you have employees, you must contribute the same percentage of their compensation to their SEP IRA accounts. They are immediately vested, so they are entitled to the entire contribution if they leave for any reason.

I suggest you meet with a tax professional or financial adviser to determine the appropriate retirement plan for your business for future years.

If both you and your wife are not covered by a retirement plan at work, you can both make a deductible IRA contribution regardless of income. If you and your wife are covered by a retirement plan at work, including a SEP IRA, your deduction is limited if your MAGI (MAGI – see IRS publication 590) is more than certain amounts. Box 13 of your W2 will be checked if you are covered under a plan at work. If this is checked and MAGI is $96,000 or less, you should both be able to make $5,500 ($6,500 if age 50 or older) in tax deductible contributions to an IRA. MAGI over this amount will result in a phase out of the allowable deduction and MAGI of $116,0000 or above will prohibit any deduction. Where only one spouse is covered by a workplace retirement plan, the spouse who is not covered may make a deductible contribution if MAGI is less than $181,000. The deduction is phased out if the couple’s income is between $181,000 and $191,000. For those filing single and participating in a retirement plan at work a full deduction is allowed if MAGI is less than $60,000 and phased out if income is between $60,000 and $70,000.

Holly Nicholson is a certified financial planner in Raleigh. She cannot answer every question. Reach her at or P.O. Box 97128, Raleigh, NC 27624