the Value of Your IRA
accounts (IRAs) continue to be one of the most powerful ways to accumulate
funds for a financially secure retirement for a multitude of reasons:
- IRAs are convenient
ways to save money.
- IRAs are available
to everyone with wages.
- Earnings within
IRAs are not subject to current taxation.
- Contributions may
be deductible in some cases.
- Additional contributions
may be made by those ages 50 and above.
- With self-directed
IRAs, there is investment flexibility.
- There is flexibility
when you begin taking money out of IRAs, especially with Roth IRAs.
The keys to maximizing
the ultimate value of your IRA are simple - contribute as much as you
can, contribute as early as you can and earn as much as you can. Here
are four ways to put those keys to work:
Everyone with earned income (wages) is eligible to contribute up to $5,500
for 2017. You can contribute to a regular IRA regardless of your income.
It may be tax-deductible if you are not a participant in a company sponsored
plan or if your adjusted income is below certain levels.
adjusted gross income levels
for regular IRA contribution deductibility
||$62,000 to $72,000
||$99,000 to $119,000
Roth IRA contributions
are not deductible, but can be made by those with adjusted gross income
under certain levels.
Modified adjusted gross income levels
for Roth IRA contribution eligibility
||$118,000 to $133,000
||$186,000 to $196,000
(Consult your tax
advisor to determine how these rules apply to you.)
of the Catch-up Provision
For the past several years, individuals age 50 and above have been eligible
to contribute extra amounts to their IRAs. For 2016, those individuals
can contribute an extra $1,000 to their IRAs. For someone that turned
age 50 in 2017 and that makes extra $1,000 contributions for 15 years
until they retire at age 65, the extra accumulation would be over $25,000,
assuming they earned 7% on their funds.
The earlier you make contributions, the earlier your money begins earning
on a tax-deferred basis. The latest you can make 2017 contributions is
April 15, 2018 (or the extended due date of your tax return). The earliest
you can make 2018 contributions is January 1, 2018. By making your contribution
early, you are more likely to make an extra contribution over your working
career and it adds up. For someone age 30, it can mean an extra $29,004
(assuming an earnings rate of 6%). For a 45 year old, the extra funds
could amount to over $12,000.
Invest Your IRA
Your IRA is, or will become, a significant part of your net worth. How
it is invested deserves the same attention you give your other investments.
Be sure to include your IRA in your overall investment planning and apply
the same principles of asset allocation, diversification and risk tolerance.
Because the funds in your IRA will remain there for extended periods of
time, you should take a long term approach with how the funds are invested.
If you choose a lower risk fixed income approach, consider longer term
CDs instead of shorter-term savings accounts or money market funds. If
you are considering equity investments, remember these funds will have
many years to grow and choose wisely.
You will ultimately
be responsible for your retirement and the decisions you make on managing
your investments are important. Doing your homework and using the services
of a qualified professional can make a large difference.