Time's Running Out for End-of-Year Retirement Planning

Detail of a clock face with only a few minutes to midnight (or noon).
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When it comes to saving for your retirement, time can either be your best ally or your worst enemy. If you start early and save consistently, it's quite possible for you to wind up retiring as a multimillionaire. The longer you wait, however, the tougher it is to amass the kind of money you'll need to build a nest egg that'll keep you comfortable through the rest of your life.

Not only do the number of years you have left matter when it comes to saving for your retirement, but the time during the year that you invest for your retirement matters, too. There are key deadlines you have to meet if you want to take advantage of qualified tax-deferred retirement plans like your 401k or an IRA. Meet those deadlines and you may be able to cut your taxes now or in retirement and take advantage of decades of tax-deferred compounding. Miss them, and you miss out on those advantages.

The Clock Keeps Ticking

If you have access to a 401k, 403b or the U.S. government's Thrift Savings Plan, you have until Dec. 31, 2014 (or more likely -- your last paycheck of the year) to contribute to your plan. In 2014, you may be able to contribute as much as $17,500 to your plan if you're under age 50. If you're aged 50 or older, the 2014 limit rises to $23,000 this year thanks to a $5,500 catch-up provision. In 2015, the limits increase to $18,000 if you're under age 50 and $24,000 if you're at least 50.

Regardless of if you have access to such a plan at work, you may be able to contribute to either a traditional or a Roth IRA. The window to contribute to your IRA for 2014 is open until April 15, 2015. If you're under age 50 at the end of 2014, the maximum potential contribution amount is $5,500. If you're age 50 or older, the limit is $6,500. For 2015, the limits will be unchanged.

If you're self-employed, you have a little more time. You have until the deadline for your 2014 taxes -- including extensions -- to establish and fund your SEP IRA. That gives you until Oct. 15, 2015, to set up that plan to shelter up to 25% of your self-employment income, but no more than $52,000 for 2014 (the limit becomes $53,000 in 2015).

Why These Deadlines Matter

Qualified retirement accounts like these are incredibly powerful tools for you in your retirement planning. Money you sock away in the plans grows tax deferred and may offer you either a tax deduction as you contribute or the opportunity to take qualified withdrawals completely tax free. You may also be eligible for a match in your employer-sponsored plan -- but you need to participate to get that match. Additionally, the money you have socked away in qualified plans may be protected from your creditors, too, based on either federal or state laws.

On top of all that, you generally face a 10 percent penalty on top of your ordinary income tax rates if you take money out of your qualified retirement account before age 59 and a half (though there are some exceptions to that penalty). That penalty can be a great deterrent against drawing down the money before you retire, helping improve the chances that the money will actually be there for your retirement.

Still, to take advantage of all those benefits, you have to get your money invested in your plan by its deadline. Otherwise, the window for that particular year slams shut forever. If you miss a deadline, you can always invest in an ordinary brokerage account and call it your retirement account. Just remember, though, that if you miss that deadline you won't get any of the unique tax, creditor and potentially matching benefits that come as part of a qualified retirement plan.

Your Retirement Depends on It

The deadline for your 401k, 403b or Thrift Savings Plan contributions for 2014 will be here sooner than you think, and the other plans' deadlines aren't really all that far behind. In addition, the sooner you get started, the faster you can put your money to work compounding for you. That, more than anything else, is the key financial ingredient that will get you through your retirement comfortably.

So use these looming deadlines as a reason to get started and fund your retirement plans. Your future self will thank you for it.

Motley Fool contributor Chuck Saletta 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. To read about our favorite high-yielding dividend stocks for any investor, check outour free report.