Are you using IRA’s to the MAX?
Saving towards retirement can be difficult considering our expenses and the lack of salary increments over the years.The world economy generally is improving, but not enough to make the economic factors of the past ones that we can depend on to secure our futures in retirement.Times have changed and we must too!Gone are the days when we would find a good paying job with excellent benefits, hold on to that job until we retire and we would be set for life.Today, job security is none-existent; excellent benefits are few and far between; being set for life is your own responsibility.
Have you heard the mantra, “Pay yourself first”?It is a great principle to adopt if you are to be successful in taking responsibility for your financial future.Here are 5 ways to use IRA’s (Traditional, ROTH) to help you take responsibility:
- 1. Invest in an IRA if you are employed and your employer does not have a retirement plan
A Traditional or ROTH IRA is a good investment vehicle.Decide which option to choose based on whether the immediate or future tax benefit is more critical for your situation.You can invest in one or the other or a combination of the two as long as you do not exceed the maximum contribution allowable for your age.Under 50 years old the cap is $5500.Age 50 or older the cap is $6500. The cap is expected to increase in future years so check trusted sources for changes.
- 2. Invest in an IRA if your employer does have a retirement plan, but the employer’s dollar for dollar matching contribution is less than your IRA maximum contribution for the year
If you are covered by an employer’s retirement plan, you MAY still be able to invest in an IRA.If you have invested $5500 or more ($6500 if you are 50 years old or older) in your pension plan, then you cannot invest in an IRA. You can combine contributions into your pension plan and IRA as long as the contribution cap for each is respected.
- 3. You are self-employed – a SEP-IRA is a good option
Small business owners many times find themselves in the position where they are so focused on the business and its employees, that they neglect their own financial situation. The “Pay yourself first” mantra applies here as well.With a SEP-IRA or 401(k) the small business owner can make a significant contribution towards retirement with very little, if any, reporting necessary. You can invest up to 25% of your net business income into a SEP with a cap of $ 54,000 for 2017.
- 4. You are self-employed, your spouse is your employee or full-time homemaker – the spouse can invest in an IRA
In general, for one to be able to contribute to an IRA the individual must have earned income.An exception exists for a full-time homemaker whose spouse has earned income.The regulation allows such a homemaker to contribute up to the maximum into an IRA.This is a great loophole to get additional income set aside for retirement.
- 5.You are a business owner and your minor child is your employee, the child can invest in an IRA
Many small business owners have their minor children doing odd jobs for them.Take the next step and pay that child.Contribute the eligible amount into an IRA in the child’s name.That’s savings for college, retirement or both.
This article is not all-inclusive. For more information talk with a financial advisor or tax professional. You may also do your own research online.IRS Pub 590 is an excellent resource. Review some of our other blog posts for more helpful information.