Even though 2013 is over, you can still make contributions to your Retirement Savings Plan through the deadline for filing 2013 Federal Income Tax Returns – April 15, 2014!
- If you are under 50 years of age, you are allowed to contribute $5,500
- If you are 50 or over, you are allowed the so-called “catch-up” additional $1,000 – making your maximum contribution $6,500
A contribution can be made to either a Roth IRA (invest after-tax money and withdraw tax-free later) or a Traditional IRA (invest before-tax money and pay taxes upon withdrawal later). I’m a big fan of the Roth IRA because it allows me to receive tax advantages on more dollars. I also believe that tax rates will continue to increase in the future so I would rather pay the taxes today.
Ways You Can Fund Your 2013 Retirement Savings Plan:
- Use your tax refund. Chances are pretty good that you would spend this on something that would decrease rapidly in value or have no value at all (vacation, vehicle, TV, computer, etc). Instead of making all of the money disappear, use a portion of it to fund your retirement!
- Use a bonus. Many people receive quarterly bonuses. Use the March bonus to fund your 2013 Roth IRA.
- Sell something. Sell the boat that sits in the yard, the motorcycle that never gets used, or the broken jewelry.
- Work overtime. Work overtime for the next few months and place the majority of the extra income into your 2013 Roth IRA. Plus you will get the added benefit of paying extra Social Security payments so you will receive $3/month extra throughout retirement.
Contributions to individual retirement savings plans are subject to certain income guidelines. You must have earned income equivalent to at least the amount you contribute to your retirement account. Additionally, eligibility is reduced as one’s income increases. The IRS provides additional guidance HERE.
NOTE: This post was written as part of the “Retirement” series here at the wildly popular JosephSangl.com! Click HERE to access all previous tips in this series.