You Can Still Max Out Your 401(k) 2014 Contribution Limit -- And You Probably Should!


Let's work together to keep this number as low as possible, shall we?

The April 15 deadline for filing federal income tax returns is looming. Maybe you're still working up your 1040 forms, and muttering under your breath for missing out on retirement account deductions because you're way below the maximum 401(k) 2014 contribution limit.

Well, don't fret. Did you know that you can contribute funds to your 401(k) under the 2013 tax year until the April 15 filing deadline?

It's true. It won't be too late to max out your 401(k), traditional IRA, Roth IRA, or SEP-IRA until it's too late to file your tax forms.

The maximum limits depends on what kind of retirement plan you're using. An employer-backed 401(k) or 403(b) plan comes with an annual limit of $17,500 this year, plus an additional $5,500 catch-up contribution if you're aged 50 or older. These limits are a modest $500 bump over last year's max, and will be the same for the 2014 tax year if you're already planning next April's filing and contribution strategies.

If you're investing through a simple IRA plan instead, the limits are lower. For the 2013 tax year, the annual contribution limit is $12,000, plus a smaller $2,500 catch-up if you're past 50 years of age.

Don't scoff at these 401(k) and IRA contributions. Every person's situation is different, but almost all of us can make a huge difference to our annual tax bills by maxing out our retirement contributions.

Here's where the magic happens.

401(k) contributions are often made with pre-tax dollars, deducted from your salary before the paycheck is issued. By reducing your top-line income directly, this move creates the same effect as a juicy $17,500 tax deduction. The process is a little different for IRA contributions, and you'd use a different Form 1040 line to report last-minute extra contributions that weren't simply drawn from your pre-tax earnings. But it's all good, and a direct benefit that reduces your total tax bill.

Roth IRAs are different again. Here, you contribute to your IRA with regular after-tax dollars. The tax benefit comes at the end, when you get to withdraw funds from the account without paying taxes on the withdrawals. Regular IRA accounts and 401(k) plans have taxable withdrawals at the end of the road.

Contributing to a retirement plan may be the most important financial decision you'll ever make.

An automatic payday contribution doesn't hurt your monthly paycheck that much, but it can still make your retirement much more comfortable. Fellow Fool Anand Chokkavelu recently recounted how the most financially irresponsible man he knows decided -- almost at random -- to take part in his employer's 401(k) plan. Now he's watching a $50,000 retirement fund grow without lifting a finger to maintain it.

401(k) plans often come with matching funds from your employer, and it's no secret that the stock market generally rises in the long run. You don't even have to beat the market to secure a generous long-term return. Over the last 20 years, the Dow Jones Industrial Average -- which arguably is the market -- has more than quadrupled in value. That's despite going through one recession and the dot-com crash.

^DJI Chart
^DJI Chart

^DJI data by YCharts.

So don't delay -- max out your 401(k) or or IRA today. If you miss the April 15 deadline, you can still file an extension to push all of these deadlines back to Oct. 15 instead, including the final retirement contribution dates. But you should probably save yourself some heartburn and bump right up to your 401(k) 2014 contribution limit in time for the regular deadline.

As of this writing, you still have a couple of weeks.

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Anders Bylund has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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