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How can you plan ahead to ensure you maximize your IRA contributions this year?
Maxing out contributions to your IRA or other retirement account(s) may seem like a large amount of money to set aside when the IRS first releases the annual limits each year, but finding a way to maximize your tax-advantaged savings is an important step in building a better financial future for you and your family.
Depending on your investment strategy, your retirement account will ideally grow over time, turning that initial contribution into a higher dollar amount. When using a self-directed IRA, your investment strategy can include both traditional assets and alternative assets such as real estate, promissory notes, private equity, and more to potentially diversify your portfolio.
Imagine what your retirement account contributions could look like by the time you retire. Could they be worth the sacrifice of saving now?
Consider using a calculator to estimate the power of compounding interest.
You might be wondering, “How can I maximize my contributions to potentially receive tax deductions next year or save on taxes in the future?”
Retirement planning and saving is a long journey. When you envision the amount you need, it might seem like an unattainable goal, especially if you feel like you had a late start.
However, if you break it down and set manageable goals, your journey might be a little easier. By setting a goal for the year, then breaking it down by month or even by week, your goal becomes less challenging and could help you contribute the maximum amount to your retirement account this year.
Video: Considering a Roth IRA This Tax Season?
Maximizing IRA Contributions: Breaking it Down
Getting into the specifics, if you’re under the age of 50, the standard limit for Traditional and Roth IRA contributions for 2021 is $6,000. The catch-up limit if you are 50 or older for Traditional and Roth IRA contributions is up to $7,000.
If you contribute to a Traditional IRA, your contributions can be potentially tax-deductible for the year.
If you contribute to a Roth IRA, your contributions are not tax-deductible, but grow in a tax-free environment.
If your goal is to maximize your contributions this year, you can follow our contribution challenge tracker for both a Traditional and Roth IRA.
You have the option to contribute for 2021 until May 17, 2022, meaning you could start as late as May this year and, following the tracker, still potentially maximize your contributions for the year.