Funding Your IRA the Easy Way with an Automatic Savings Plan

Unbiased Financial Information Provided by Financial Wisdom.

Your Individual Retirement Account (IRA) is one of the four main components of a financially secure retirement.  Anyone with wages under the age of 70 ½ can contribute, the annual contribution limits have been increasing and there are tax benefits.

Benefits Add Up

The amount you can accumulate depends on two factors – what you contribute and how much the funds grow within the account.  Of course, the more contributions you make and the higher the earnings rate, the more you will accumulate.  No one can control (or accurately predict) what will happen with interest rates or the stock market.  But, you control how much and how often you contribute.

Start Now and Make It Easy

The contribution limit for 2017 is $5,500 for those under the age of 50 and $6,500 for those 50 and above.  If you make annual contributions of $5,500 for 20 years and earn 6%, your IRA will grow to almost $184,000.  Ten years’ contributions will grow to over $72,000.  The keys are to start early and contribute every year.  Waiting just one year or missing a year can cost you plenty.

Use an automatic savings plan to make it easy.  If you are under the age of 50 and start in January, you can make your full contribution with only $458 each month.  If you are age 50 or above, it only takes $541 each month.

Start Your Automatic Savings Today

There is no easier way to save than with an automatic savings plan. If you are already using direct deposit for your paycheck, have your financial institution transfer the amount each month. You can also have your employer deduct the amount each month and deposit into the account of your choice.

Basic Rules for Regular IRAs

  • Contribution limits for 2017 – Those under the age of 50 can contribute $5,500 and those ages 50 and above can contribute $6,500.  The only requirement is that you have wages in excess of your contribution level.
  • Deductibility of contributions – Contributions are tax deductible if you are not eligible to participate in your employer’s qualified retirement plan or if your Adjusted Gross Income is below certain levels (for 2017 – $62,000 for single filers and $99,000 for those filing jointly).
  • Tax benefits – The earnings on funds within an IRA are not subject to income tax when earned.
  • Distributions – You must start taking distributions in the year you reach age 70 ½ and distributions are taxable.
  • Penalties for early withdrawals – Withdrawals before age 59 ½ are subject to a penalty tax of 10% along with regular income taxes.

Roth IRAs

Roth IRAs have the same contribution limits, however contributions are not allowed for those with Adjusted Gross Income above certain levels.  Contributions are not deductible, earnings are tax-deferred like a regular IRA and there are no distribution requirements.  Early withdrawals are subject to the 10% penalty tax.

Consult Your Tax Advisor

Everyone’s tax situation is different and you may want to discuss your situation with a qualified tax advisor to learn how the rules may apply in your situation.

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