|Many people are still working on getting taxes filed by April 15. While some people are stressing out over waiting to do their taxes, there is a big advantage (plus a last-minute tax deduction) to the delay: You can maximize your 2013 contribution for your IRA.
Max Out Your Roth IRA
For those not familiar with IRAs, they are special tax-advantaged accounts that allow you to save for retirement. With traditional IRAs, your contributions are tax deductible, and withdrawals are taxed when you take money out at retirement age.
Roth IRAs work in the reverse (contributions are taxed, withdrawals are tax-free). If you expect to be in a higher tax bracket when you retire, Roth IRAs can provide you a huge tax advantage.
Contribute to Your IRA Until Tax Day
When you open or log into your IRA account, there is usually an option for choosing which tax year to make the contributions for. Youíll want to use 2013 (save 2014 for later, see details below). For 2013, your contribution limit is $5,000 (if youíre over 50, itís $6,000) per person. That means married couples can contribute up to $10,000 total to their IRAs.
You can make 2013 IRA contributions up until tax day, so if you havenít contributed the maximum, you still have time.
While 401(k)s have great tax breaks, IRAs offer greater flexibility because many 401(k) plans have limited options for where to invest. You can open an IRA with your bank or credit union, or with a brokerage. Many discount brokerage sites offer IRAs with minimal fees and give you freedom to choose how to invest.
They are even options that allow you to start investing with less than $500. Considering the two biggest factors for maximizing the power of compound interest are the interest rate and the length of time your money earns interest, you should start your contribution now (even if itís only with a little bit of money) rather than waiting.
Build Retirement Savings with an IRA Strategy
After youíve taken care of your taxes and 2013 contributions, you can give yourself a head start for 2014. Go ahead and set up automated contributions towards your Roth IRA.
2014 IRA Contributions
Hereís a quick and easy guide on where to put your retirement money for 2012:
Start with your companyís 401(k): Make sure to maximize the employerís match ó thatís free money for your retirement.
Fill up your Roth IRA: Go ahead and do your best to reach the yearly contribution limit.
Rest into 401(k): If you have money left in your budget to contribute, go back and focus on your 401(k).
When you automate your contributions, you keep yourself on track without having to constantly check on your accounts. You can then focus your time on other things that matter to you.
Iíd love to see where youíre at with your taxes and retirement this year. How are you doing with your taxes? Did you max out your 2013 IRA contributions yet? Are you planning to do so?