IRA Accounts Are Another Way To Save For Retirement

Most people are under the mistaken assumption that once they start to contribute to a Thrift Savings Plan (TSP), they can no longer put money into an IRA. This fallacy hinders their retirement wealth.  The reality is this – if you have a fully-funded TSP account, you can send money into an IRA account.

 

Now, your income level may affect the contributions deduction to a traditional IRA, and you may be unable to contribute to a Roth IRA. However, so long as you are 70 1/2 years old or younger, contribution to a traditional IRA can be made and you can take advantage of the tax protections it offers.

Looking At Traditional IRA For Anyone Under the Age of 70 1/2

Anybody who is younger than 70 1/2 is permitted to contribute to an IRA, but the limit is $5,500. If you’re 50 and older, the limit is $6,500. People who fail to meet the income criteria can have their contributions deducted from their taxable income. People who earn more than the income deduction limits are still allowed to make contributions but are ineligible for a federal income tax deduction.

 

When it comes to Roth IRA contributions, there is no age limit, but an income limit does exist. People who have income that exceeds the income limit continue to contribute to a traditional IRAand set up a “backdoor conversion” that goes to the Roth IRA.

Contributing to an IRA is like planting a money tree

How Much Compound Interest Can You See In An IRA?

iras are great

You may be wondering how much retirement savings you’d miss out on if you decide against an IRA contribution. The answer is simple – you’d miss out on a lot of money. For example, an employee making a $5,500 a year contribution for 30 years, earning about five percent a year would end up with more than $370,000 a year after 30 years.

 

Over half of the total amount is due to growth, not contributions.

 

For a person who contributes for 15 years at the maximum amount would have $120,000 in an IRA account. For them, that amount comes from contributions instead of growth.

 

This is the power compound interest has.

 

Why a monthly contribution rather than a single one? When you automate your savings with a monthly direct debit, it means your savings work on auto-pilot and are likely to attain goals you set forth to accomplish.  If you were to contribute to your IRA manually, you might not contribute as often or regularly, which means you don’t save as much.

It’s Time To Start Contributing To Your IRA

It’s imperative to start contributing to your IRA; but, before you do, here are a couple of pointers to remember:

 

Each year, what you can and can’t do with your IRA will change. And, with the 2018 tax year over, there can no longer be contributions made to the 2017 IRAs. Thus, people will need to focus on the 2018 IRA accounts.

 

And, starting with the 2018 Roth conversions, you are not permitted to undo Roth conversions. However, you still have until Oct. 15 to undo a 2017 Roth conversion if you want.

 

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