Gift to Yourself: Maximize IRA Contributions - Benefits of Funding IRAs for Retirement Planning

For most people to live a conservative and long retirement, they need to plan to have between 1-3 million saved. You read that right. And frankly, that’s probably on the low end. Healthcare in retirement costs hundreds of thousands and will continue to increase. And that doesn’t include long-term care.

Read on when you’re finished hyperventilating.

Investment vehicles, strategies, and tools are available to help you get to a place where retiring well is possible. Individual Retirement Accounts (IRAs) are one of your best allies in retirement planning. Not only do they offer tax benefits, but they also set the stage for long-term growth that can significantly boost your retirement savings.

Now, there are a couple of options when it comes to IRA types, so let’s explore:

Traditional vs. Roth IRA: What's the Best Fit for You?

Traditional IRA: Contributions might be tax-deductible, depending on your income and whether you're enrolled in an employer-sponsored retirement plan, such as a 401(k). This means you can lower your taxable income right when you contribute, offering immediate tax relief. Plus, your investments can grow tax-deferred, meaning you won't owe taxes on your earnings until you retire. But remember, when the time comes to withdraw, those funds are taxed as ordinary income, and the IRS will expect you to start taking required minimum distributions (RMDs) at age 73.

Roth IRA: Contributions to a Roth IRA are made with after-tax dollars so you won't get an upfront tax deduction. However, this paves the way for tax-free retirement withdrawals—including your contributions and any earnings. Plus, there are no RMDs, letting your money grow uninterrupted for as long as you want. With the added perk that you can withdraw your contributions anytime without penalties, a Roth IRA offers unmatched flexibility. Just check the income limits if you're a higher earner! If you outearn the limit for a Roth, there are other options we can explore.

Timing is Everything

One of the standout features of IRAs is their funding flexibility. Unlike 401(k)s, which need contributions wrapped up by December 31, you have until the tax filing deadline—typically April 15—to fund your IRA for the previous year. This flexibility empowers you to manage your finances effectively, allowing you to keep adding funds until April 15, 2025, for the 2024 tax year.

Consider setting up automatic contributions or making lump-sum deposits to maximize your IRA. We can help you set up a funding plan that best fits with your financial goals. These powerful tools are here to help!