Individual Retirement Accounts or IRAs can be a useful tool that can help you build your finances, prepare for a better retirement, and get savings at tax time. However, some people are confused on what they are, how much they can contribute, and the deadline for their contributions. I’ll answer some common questions to help you feel more comfortable using them.
Max Out Your IRA Contributions
When should you start investing in an IRA? As soon as you can, provided that you have an emergency fund in place and don’t have any high-interest debts.
How much can you contribute to your IRA? For 2017, you can contribute $5,500/year or the amount of your taxable compensation. If you’re over 50, you get an additional $1,000 added to your contribution ($6,500/year). Don’t forget that these are for individuals, so a couple younger than 50 can contribute $10,000 into IRAs ($5,500 each). If you can max out your contributions, then please do so.
With IRA contributions, there are guidelines for the deduction and contribution limits. If you contribute to your traditional IRA by April 15th, you may be able to claim a tax deduction on your tax return for the amount contributed. Roth IRA contributions, however, are not tax deductible since the qualified distributions are tax-free.
Make it Easy to Contribute
The easiest way to stay on target for your investment goals is to go ahead and automate your IRA contributions. It can be as small as $50/week; the important part if getting you into the habit of saving up for your retirement.
You can also set aside any bonuses or windfalls you get this year to deposit into your IRA.
Deadlines for Contributing to Your IRA
2016 is over, but you still have until April 15th to make a tax-deductible contribution to your traditional IRA and reap the benefits of a bigger tax refund.