Year-end Planning – Retirement Account Funding

  |   Planning, Retirement Planning, Year-end Planning

Fact or Fiction

All contributions to retirement accounts must be made by December 31.


It is easy to be confused about retirement account rules, especially the dizzying array of contribution amounts and deadlines.   Combine the confusion with the lack of ability (and sometimes desire) to save, it is not hard to understand why, according to the Economic Policy Institute (EPI), the average family has a $95,776 retirement nest egg.  Furthermore, the average household close to retirement (ages 56-61) has $163,577 saved.

While we can’t tackle the barriers to saving in this post (maybe in a future one?), we can help to decipher the rules regarding the timing and contribution amounts of 5 popular retirement vehicles.

#1 401(k) Plans

Employee salary deferral contributions to employer-sponsored 401(k) plans must be made by December 31.  If you plan to make the maximum contribution for 2017 ($18,000, plus a $6,000 catch-up for those 50 and over) but haven’t yet done so, contact your employer or plan administrator to find out how to increase your contributions.

Solo/Individual 401(k) plans (a traditional 401(k) plan covering a business owner with no employees, or that person and his or her spouse) have slightly different rules.  While the plan must be established by December 31, the contributions, both the employee deferral portion and the profit-sharing portion, must be made by the time the income tax return is filed with extensions.  The tax filing dates and extensions are based on the individual return for sole proprietorships and on the business return for incorporated businesses.

The maximum plan contribution amount, including the employee deferral, employer match, and profit-sharing for both types of 401(k)s is $54,000 for 2017 (plus the $6,000 additional contribution for those 50 and over).  For solo 401(k)s, the maximum profit-sharing amount may be limited due to the business income or profit in any given year. See this IRS link for more information.

#2 Traditional and Roth IRAs

IRA contributions, both traditional and Roth, do not have to be made until the individual tax filing date (without extensions!).  For 2017, all contributions must be made by April 17, 2018, even if your tax return will be filed on extension.  The maximum contribution amount is $6,500 (plus the $1,000 additional contribution for those 50 and over).

#3 SIMPLE Plans and SEP Plans

SIMPLE (Savings Incentive Match Plan for Employees) and SEP (Simplified Employee Pension) are basically IRA-based plans offered by smaller employers who do not offer more complex retirement plans such as 401(k)s.


The first issue to understand about SIMPLEs is that they must be established by October 1 of the current year in order to be eligible for current year contributions.  If you have not yet established a SIMPLE plan for 2017, you are out of luck and will have to consider a different plan.

The deadline for contributing the employee salary deferral is the 30th day after the plan year, which is January 30 for most companies.  The employer portion of the contribution must be made by the business’s tax filing date (including extensions).

The maximum employee salary deferral amount is $12,500 (plus the $3,000 additional contribution for those 50 and over) or 100% of the employee’s compensation, whichever is less.  The maximum employer match is the same: $12,500 for those under 50 and $15,500 for those 50 and over.


Unlike SIMPLEs, employers have until the due date of the tax filing (including extensions) to establish and fund a SEP.  For incorporated businesses, the 2017 contribution maximum cannot exceed the lessor of 25% of total compensation or $54,000.  For sole proprietorships, the contribution maximum cannot exceed the lesser of 20% adjusted earned income or $54,000.   Note that there are no 50 and over catch up contributions for SEP IRAs.

Final Thoughts

You are not precluded from making an IRA contribution just because you participate in a 401(k), SEP, or SIMPLE.  While you may be unable to make a deductible traditional IRA contribution due to your income and/or participation in an employer plan, you can always make a non-deductible traditional IRA contribution (see this IRS chart for more information).  Alternatively, you might be eligible to contribute to a Roth IRA if your income is below the IRS income limits.

Whatever type of retirement plan you have, don’t let confusion stop you from making contributions!  If you are a business owner or are self-employed and the plan you have in place no longer fits your needs, talk with an advisor about different plan options and how best to maximize your savings.  If you are an employee and don’t understand your plan or how much you can contribute, ask someoneLet’s all focus on making retirement savings a priority, no matter which plan we are using.

Lastly, if you are one of the many individuals with a number of old plans that you don’t pay much attention to, consider consolidating them to simplify the management of the funds.  This chart from the IRS will help you to determine which accounts can be consolidated.

AUTHOR - Tammy Wener

As co-founder of RW Financial Planning, Tammy oversees the financial planning process for all clients and manages the day-to-day operations of the firm. She truly enjoys getting to know her clients and is not shy about asking questions. Tammy has 15+ years of experience in the financial planning and estate planning fields and has worked with a broad range of clients including: couples simultaneously planning for financial independence, caring for their parents, and saving for college; newly widowed and divorced women looking to become more financially literate; young couples just starting out; families juggling the demands of a child with special needs; and financially independent individuals and couples exploring “what comes next.”