Individual retirement accounts are a great way to save for your retirement tax-free. What’s not so great is figuring out how you can scrape the money together to take full advantage of it.
The IRS allows you to contribute up to $7,000 in 2024. People 50 or older can contribute an additional $1,000 to an IRA.
While Roth IRAs have the same contribution limits, we're talking mainly here about traditional IRAs, which offer an upfront tax break.
Once you open an IRA, you can fund the account with cash, a check or a direct transfer from your bank.
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Yes, some savers can actually get the government to help them feed their IRA.
Here’s how: You may be able to get a bigger refund on your taxes by claiming a deduction for your contribution to a traditional IRA. Then, use the extra refund money to build up next year’s IRA contribution.
Are you eligible for this tax deduction? If you (and your spouse, if you're married) don't have a retirement plan at work, then generally you're eligible for the full deduction.
But if you or your spouse are covered by a retirement plan at work, you’ll need to earn less than certain amounts to get this little trick to work. You can view the full traditional IRA deduction limits here.
If you earn too much to get this credit, consider a Roth IRA instead. There are income restrictions here, too, but they're more generous. And you'll get some seriously good future benefits instead of a tax break today. Check out our guide on Roth IRAs vs traditional IRAs.
» Did you know? Even without a tax deduction, a nondeductible IRA makes sense for some people.
2. Let Uncle Sam help you again
The government may come to your rescue again, especially if you’re a low- or moderate-income saver. You can claim the Saver’s Credit on your tax return, which offers a tax credit of up to 50% based on traditional IRA contribution. For example, if you're filing as single and contribute $2,000 to a traditional IRA, you would receive a tax credit of $1,000. For those married filing jointly, it would be a tax credit of $2,000 for a contribution of $4,000.
However, you'll need to have an income below a certain level to qualify. For tax year 2024 (taxes filed in 2025) taxpayers who are married filing jointly will need a 2024 adjusted gross income below $46,000 to claim the full 50% tax credit.
For single filers, 2024 adjusted gross income cannot exceed $34,500. The credit is completely phased out at 2024 incomes of more than $76,500 for those married filing jointly. For single filers, the credit is phased out at 2024 incomes above $38,250.
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3. Break it down
Sometimes the hardest part of getting funds for your IRA is just getting started. After all, $7,000 is a chunk of money and it can be difficult to scrape together. In that case, it can be useful to break down that annual goal into smaller amounts — even daily if that’s what gets you to save.
4. Pocket your tax refund
If you get a tax refund (use our free tax calculator to estimate), consider using that money to prop up your retirement savings. You could funnel that extra money into next year’s IRA contribution.
5. Pay your IRA first
Steal a play from your employer’s retirement-plan playbook: Consider tucking away your IRA money before you can spend it. Set up your accounts so that they direct money to your IRA with every paycheck, just like a 401(k) plan does. If you receive a paycheck every two weeks, consider allowing the brokerage to dip into your bank account and transfer your contribution on payday.
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Usually you'll do this by transferring money from a bank account, transferring existing IRA assets from a different firm into your new account or rolling over a 401(k). Just remember that IRAs have an annual contribution limit of $7,000 in 2024 ($8,000 if age 50 or older), but you don't have to contribute that much.
For an income of $80,000, you would need a retirement nest egg of about $2 million ($80,000 /0.04). This strategy assumes a 5% return on investments, after taxes and inflation, no additional retirement income, such as Social Security, and a lifestyle similar to the one you would be living at the time you retire.
If you can afford to contribute around $500 a month without neglecting bills or yourself, go for it! Otherwise, you can set yourself up for success if you can set aside about 20 percent of your income for long-term saving and investment goals like retirement. Prioritize high-interest debt, but don't ignore other goals.
Bank IRAs are ultra-safe investments. If you open one at a Federal Deposit Insurance Corporation (FDIC)-accredited institution, the funds you save in an IRA savings account or IRA CD receive deposit insurance up to the legal limit. Even if the bank were to fail, you wouldn't lose the funds saved in your IRA.
So if you have enough money right now to max out your IRA — or even just a good chunk of change you could put in — put in that big contribution as soon as you can. The research supports investing the whole amount at once, up front, to take max advantage of all the time you have.
Everyone isn't going to want to spend $10,000 net a month in retirement. For some people, that will be way more than they need each month. For others, it might not be enough. And there might be some people that spending $10,000 net a month in retirement is just right.
If you've managed to save $300k successfully, there's a good chance you'll be able to retire comfortably, though you will have to make some compromises and consider your plans carefully if you want to make that your final figure.
This money will need to last around 40 years to comfortably ensure that you won't outlive your savings. This means you can probably boost your total withdrawals (principal and yield) to around $20,000 per year. This will give you a pre-tax income of almost $36,000 per year.
The income limits on Roth contributions increased for 2024, which means savers with income at or below $161,000 ($240,000 for married couples filing jointly) can contribute to a Roth IRA.
If you're focused on long-term growth, investing $100 each month could be a good move for you. Many people invest through an IRA account. Check out our list of the best IRA accounts to learn more about how these investment accounts function.
Do not subtract other amounts that may be withheld or automatically deducted, like health insurance or retirement contributions. Those will become part of your budget. The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings.
How much can I contribute to an IRA? The annual contribution limit for 2023 is $6,500, or $7,500 if you're age 50 or older (2019, 2020, 2021, and 2022 is $6,000, or $7,000 if you're age 50 or older). The annual contribution limit for 2015, 2016, 2017 and 2018 is $5,500, or $6,500 if you're age 50 or older.
Another way to set and forget contributions is through direct deposits. Talk to your employer about depositing a portion of your paycheck directly into your IRA , so you'll never have to worry about cash making it into your account.
Your account can grow even in years when you aren't able to contribute. You earn interest, which gets added to your balance, and then you earn interest on the interest, and so on. The amount of growth that your account generates can increase each year because of the magic of compound interest.
You can transfer funds from your bank account using an ACH transfer or another electronic funds transfer. You can do this by visiting the website of the bank or brokerage that sponsors your Roth IRA and following their directions for making a contribution. Automatic contributions.
Introduction: My name is Lakeisha Bayer VM, I am a brainy, kind, enchanting, healthy, lovely, clean, witty person who loves writing and wants to share my knowledge and understanding with you.
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