If you prefer to procrastinate, you can contribute to an IRA until the following year's tax-filing deadline. However, you may not be able to deduct all of your traditional IRA contributions if you or your spouse participate in another retirement plan at work. If you have time to allow your investments to grow, even a few years if you maximize your IRA contribution can help you succeed in retirement. Traditional IRAs are a great way to save for retirement because they offer you a tax break for doing so.
Once you've obtained the maximum consideration from the employer, you can deposit additional sums into a Roth IRA or a traditional IRA, even if the contributions aren't deductible. A Roth IRA is not deductible: you pay taxes in advance on your contributions and then make tax-exempt withdrawals when you retire, but eligibility is based on income limits. But how do you maximize the benefits of an IRA? Here's how much and how often you should contribute to your traditional or Roth IRA. It's also worth keeping in mind that the two most common varieties of this savings vehicle, traditional IRAs and Roth IRAs, have different rules.
Like employer-sponsored 401 (k), traditional IRAs can dramatically reduce the amount of income you have to disburse to the federal government. It is usually more advantageous to finance them to the maximum first, especially if the company contributes generously to employee contributions. The owner of a traditional IRA doesn't immediately owe income taxes on the money deposited in the account. There are income restrictions on Roth IRAs, which can reduce or eliminate the tax deduction you can request for your traditional IRA contributions.
Learning the difference in the rules between contributing to a traditional IRA and a Roth IRA pays off in the long run. But how do you maximize the benefits of an IRA? Here's how much and how often you should contribute to your IRA.