Let's work together to keep this number as low as possible, shall we?
Editor's Note: A previous version of this article incorrectly stated that all employee-participants in 401(k) plans can still make contributions for the 2013 tax year until April 15, 2014. This option is not available for most 401(k) participants. The author and the Fool regret the error.
The April 15 deadline for filing federal income tax returns is looming large these days. Maybe you're still working on your 1040 forms and cursing under your breath for missing out on retirement account deductions.
Don't panic. Did you know that you might be able to contribute funds to your IRA under the 2013 tax year -- all the way until the April 15 filing deadline? That's true for traditional and Roth IRAs, and even for certain self-employed options like SEP-IRAs, SIMPLE IRAs, and solo 401(k)s so long as you've done the necessary prep work beforehand.
More importantly, though, you should now be thinking about getting to the maximum 401(k) 2014 contribution limit. For most 401(k) participants, the annual limit for 2014 is $17,500, plus an additional $5,500 catch-up contribution if you're aged 50 or older.
Don't scoff at these 401(k) contributions. Every person's situation is different, but almost all of us can make a huge difference to our annual tax bills by contributing to a 401(k). Even if you can't afford to max out your retirement contributions, it's worth considering to see if you can collect matching contributions from your employer and other incentives.
Here's where the magic happens.
401(k) contributions are deducted from your salary before the paycheck is cut, printed, and sent home. For traditional 401(k) contributions, 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 still a direct benefit that reduces your total tax bill.
Roth 401(k)s and 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 -- and now he's watching a $50,000 retirement fund grow without lifting a finger to maintain it.
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 (^DJI +0.02%) -- which arguably represents the market -- has more than quadrupled in value. That's despite going through one recession and the dot-com crash.
So if you haven't made a 2013 IRA contribution yet, don't delay -- make it today. 401(k) plans are great, what with their employer matching policies and low maintenance. But sometimes the flexibility of an IRA lets you do things that a 401(k) plan won't allow.
Meanwhile, take steps now to take maximum advantage of your 401(k) 2014 contribution limit. The sooner you act, the less you'll have to worry about come tax time next year.
