Don't Mess With Taxes

Every financial adviser recommends that we all keep close eyes on our retirement plans, either by reallocating our investments or contributing more money throughout the year.

Just last week, in fact, I put contribute to your retirement accounts on my list of 6 tax moves to make in July.

Whether you're a young worker like those in this group or an older employee, take full advantage of your workplace's retirement plan.

I felt like a bit of a nag, but apparently, folks — especially younger workers — need the constant reminding, especially when it comes to defined contribution plans such as 401(k)s.

Missing out on retirement savings: A new report from Wells Fargo Institutional Retirement and Trust shows that workers in all age groups are leaving valuable retirement money on the table.

Most employers pitch in a percentage of the amount that workers put into these defined contribution plans. The smartest move if your budget allows is to contribute at least as much as your boss will match.

Around a quarter of Baby Boomers, however, aren't doing that. For Gen Xers, 31 percent are missing their bosses' maximum matching contributions. And 37 percent of Millennial employees are forgoing retirement money.

Participation rates are similar: Those contribution figures align with overall generational participation rates.

In both categories, younger, more recently hired and lower earning employees are the least likely to open a 401(k) plan or, if enrolled, contribute as much as they are allowed to it.

There is, however, some good news.

The Wells Fargo analysis found some gains in average contribution rate over the past five years, particularly among Millennials.

Boomers are still participating more, but a larger percentage of Millennials over the last five years has been contributing to workplace plans. Good for these kids today!

Auto enrollment helps a lot: The Wells Fargo study was designed to help companies design or refine their retirement plans to address employee needs. Obviously, the generational considerations mean that there are a lot of variables.

But one consistent is that automatic enrollment is one of the most effective tools in getting workers to take responsibility for their future retirement financial needs.

Average participation for plans with automatic enrollment exceeds 80 percent, according to the Wells Fargo data, while plans without it have less than 50 percent participation.

It's also a good idea in many cases, says the financial institution, to automatically enroll all eligible employees, not just new hires.

Average participation for plans that automatically enroll new employees is 82 percent, compared to 88 percent in plans that automatically include all employees in retirement plans.

More see a brighter retirement: There's also some additional positive outlook when it comes to retirement savings from Lincoln Financial Group.

In a 2012 to 2015 comparison of feelings folks have about their retirement plans, people are less anxious and in fact more confident, even optimistic, about their nest eggs.

Retirement contribution maximums: Are you among those adding more to your workplace and individual retirement plans? Good for you.

If you aren't and want to maximize your contribution amounts, here are the 2017 tax year maximums per the Internal Revenue Service inflation adjustments:

• The limit on annual contributions to an IRA, traditional or Roth, is $5,500.
• The additional catch-up contribution limit for individuals aged 50 and over is $1,000. This amount is set by law, so it's not subject to an annual cost-of-living adjustment.
• The employee contribution limit for workplace defined contribution plans such as a 401(k), 403(b), most 457 plans and the federal government's Thrift Savings Plan is $18,000.
• The catch-up contribution limit for employees aged 50 and over who participate in such workplace plans is $6,000, meaning older workers can stash as much as $24,000.

The workplace plans typically are tax-deferred, meaning that the money goes into your retirement account before taxes are taken out of your check. That means that you'll owe taxes on the money when you eventually withdraw it. But the hope is that by then you'll be in a lower tax bracket.

Some companies, however, do offer Roth plans, where taxes are paid on the account money, but qualified distributions are tax-free.

Evaluate and participate: Examine all the workplace retirement plan options and how they fit with your personal financial needs before making a choice. But do pick one and contribute!

Your active involvement in your retirement savings has become an increasingly important part of the traditional three-legged retirement stool.

You also can find more important amounts, such as income limits on traditional IRA deductions and in the ol' blog's look at retirement-related inflation changes for the 2017 tax year.

The maximum allowable contributions amounts are a lot, especially for lower-earning workers. But if you can swing at least some retirement contribution, do so.

And when you get a raise, increase your workplace plan contribution amount, too, so that you at least get your employer's full matching contribution.

A little budget tightening now when you're younger could make a big difference in how enjoyable your post-work lifestyle will be.

You also might find these items of interest:

• Millennials depend on mom and dad for tax filling help
• Most millennials want houses like their parents, eventually
• Millennials' health care preferences are likely to shape any Obamacare rewrite