It’s Not too Late to Make a 2021 IRA Contribution
It’s not too late to make an IRA Contribution for 2021. You have until April 15th of any year to contribute the yearly allowable amount for the previous year. For 2021 individuals can contribute $6,000 per person for ages under 50. If you are 50 or older you can contribute $7,000 for 2021. Maximum limit amounts start phasing out at $66,000 for individuals, $105,000 for married couples where both spouses are covered by a work retirement plan and $198,000 for married couples where only 1 spouse is covered by a work retirement plan.
IRA stands for Individual Retirement Account. It is a savings account with tax advantages that individuals can open on their own to save and invest long-term for retirement. To be eligible to contribute you must have documented earned income in the corresponding calendar year. The earned income must be at least the amount of the contribution. Earned income typically means wages, salaries, tips, bonuses, commissions and self-employment income. It does not mean investment income. Spouses with no income can make contributions to Roth IRAs, using the working spouse’s earned income.
There are many benefits to contributing to an IRA. Contributions may be tax deductible on your tax return. Earnings grow tax-deferred or tax-free, depending on the type of IRA you purchase. Tax credits are also available if you are eligible, based on your income level and tax filing status.
Even if you participate in your company’s 401k plan, or other Retirement Plans, you may still be able to contribute some to an IRA. You should contribute the max you can to your Employer’s 401k plan to take full advantage of company matches, which is basically free money. Then your goal should be to contribute the maximum allowed in an IRA, too.
Money in a Traditional IRA usually can’t be withdrawn before age 59 ½, because the reason for the tax breaks is to encourage retirement savings. A 10% tax penalty is incurred if funds are withdrawn prior to age 59 ½, unless funds are used for special situations. These situations include paying for Qualified Education Expenses for yourself, spouse, children or grandchildren, using up to $10,000 to buy a 1st time home, paying for unreimbursed medical expenses exceeding 7.5% of your adjusted gross income, military active duty, permanent disability or $5,000 the year you become a parent (through birth or adoption).
Your tax preparer is a great resource to help you calculate contribution amounts. Tax preparation software can calculate amounts that will optimize your tax benefits. You can get your taxes prepared, and even filed, and you still have until April 15th to make the IRA contribution.
You can open an IRA through a bank, personal broker, online broker or investment company. There are no rules on minimum amounts needed to open an account. Some brokers even offer $0 down.
Make sure and don’t let this yearly opportunity pass you by. Time helps your money grow exponentially, so contribute as early and consistently as you can to ensure a nice nest-egg at retirement.
