Contribute today, deduct on last year's taxes
It’s easy to put off an IRA contribution. Other uses for the money may seem more urgent, like a vacation, a new car or maybe just leaving the funds in a regular account to build some liquidity. However, the decision to not contribute to your IRA may have a big impact on your retirement.
The annual contribution limit to an IRA is $6,000 (as of 2020), and if your age 50 or above you can contribute an additional $1,000 annually. The tax deferred compounding within a Traditional IRA allows your money to grow faster since you don’t have to pay any taxes while the funds are in the IRA.
The Roth IRA has many similarities to the Traditional IRA but offers tax deferral on any earnings in the account. Roth accounts also have fewer restrictions and requirements, and transactions inside the account (including capital gains, dividends and interest) don’t incur a current tax liability.
Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 1/2 or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.
The cost of not contributing to your IRA or delaying a contribution can be significant. By contributing early and often, your IRA balance has the opportunity to grow even more. Contribute before this year’s tax deadline of April 15 and you can still deduct on last year’s taxes. Even contributing now instead of next April can help put you ahead. Talk with a Starion Investment Services wealth advisor to make your annual contribution today!
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