New Overtime Regulations Can Mean More Money for Retirement

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On Wednesday, May 18, the Obama administration announced a new rule that will allow middle-income workers to receive overtime pay. The change will go into effect on December 1st of this year.

These new regulations will enable full-time salaried employees who earn up to $47,476 a year to receive overtime pay. The Department of Labor estimates that this rule will boost the income of 4.2 million additional workers. According to the Washington Post, “About 35 percent of full-time salaried employees will be eligible for time and a half when they work extra hours under the new rule, up significantly from the 7 percent who qualify under the current threshold.”

What does this new overtime rule mean for middle-income self-directed IRA owners? More yearly income could mean more money for account holders to set aside for retirement at a tax free or tax-advantaged state. If the extra income sends a tax payer into a higher income tax bracket this year, they may want to open a Traditional IRA (assuming they believe their tax status will be lower at time of retirement). With a Traditional IRA, money goes into the account tax free, and is only taxed upon distribution at retirement, at the account holder’s current tax rate.

If the extra bump in income will not push the tax payer into a higher tax bracket, they may want to open a Roth and pay taxes on their maximum yearly contribution as it goes into the account. Once the account holder reaches 59.5, distributions from the account are tax-free.

Making the maximum yearly contribution into a retirement account can sometimes be a stretch for account holders to budget. With the new overtime regulations, retirement investors may find themselves with extra income to make their yearly IRA contribution maximum a breeze. This frees up more income for self-directed IRA owners to invest in the alternative assets of their choice and potentially maximize their retirement savings.

Most financial advisors encourage tax payers who come into extra income to set aside any amount they can for their retirement savings. Feel free to contact New Direction IRA today to learn more about your self-directed IRA options, and start saving for a cushy retirement today!

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