It’s Not Too Late to Contribute to Your IRA in Advance of Tax Day
Although the pandemic impacted Americans’ personal finances in the past year, as well as their plans for retirement, 82% say they are still confident they can achieve their retirement goals, according to Fidelity Investments’ 2021 State of Retirement Planning Study.
And not only are they voicing confidence in their retirement planning, they are taking action, Fidelity data shows. The study found a 52% year-over-year increase in the number of contributing accounts, which means more people are adopting IRAs as one avenue to saving for retirement. What’s more, the investment firm saw a 48% year-over-year increase in year-to-date individual retirement account contributions at the end of the first quarter of 2021.
The tax filing deadline extension from IRS added extra incentive to tuck away even more for retirement in 2021, as Americans have until May 17 to max out their IRA contributions to the $6,000 annual limit.
Whether you have an IRA yet or not, here are some things to consider when it comes to retirement planning.
Plan Ahead When it Comes to Retirement Planning
While you could, theoretically, sock the entire $6,000 limit into your IRA the day before you file your federal taxes, it’s smart to make smaller contributions throughout the year to avoid having to scramble come tax time.
You might also consider kickstarting next year’s contributions by depositing all or part of your tax refund into your IRA, which can help reduce your tax burden next April.
If You’re Self Employed, Consider a SEP IRA
As the gig economy grows, more Americans may find they lack benefits such as 401(k)s with matching funds from their employer. A Simplified Employee Pension plan, or SEP IRA, could be the solution, say the experts at Fidelity. The SEP IRA offers tax-deferred retirement savings — with a higher contribution limit, since it is based on your self-employment income. The deadline to establish or contribute to a SEP IRA is the same as a traditional IRA, which means until you have until May 17 this year to make the decision.
Ramp Up Your Contributions If You’re Over 50
If you’re 50 or older, you can contribute an extra $1,000 per year in a traditional or Roth IRA account. These “catch-up” contributions can help you save more for retirement. Fidelity provides a hypothetical example: Someone who puts an extra $1,000 into their IRA beginning at age 50 would have almost $44,000 more in the account in 20 years (at a 7% return) than someone who didn’t take advantage.
Review and Revise Your Plans
As you file your taxes for 2020, it’s a good time to take stock of your personal finance situation, including outstanding debt, retirement plans and emergency savings. Speak to a financial professional to decide upon the best money moves to make for a more financially secure future, Fidelity advises.
More From GOBankingRates
- Money’s Most Influential: Where Do Americans Get Their Financial Advice?
- Don’t Miss Out on Nominating Your Favorite Small Business To Be Featured on GOBankingRates — Ends May 31
- ‘Rich Dad Poor Dad’ Author Robert Kiyosaki: You Should Never Say ‘I Can’t Afford That’
- Everything You Need To Know About Taxes This Year