If you're housing retirement savings in an IRA, you're already on your way to building wealth for the future, all the while potentially eking out some near-term tax savings. And if you can't remember the last time you checked up on your IRA, now's a good opportunity to pay that account some attention. Here are a few moves it pays to make before the end of the year.
1. Max out if you haven't done so yet
The more money you contribute to a traditional IRA, the more you'll lower your 2020 tax bill. This year's IRA contributions max out at $6,000 for savers under 50, or $7,000 for those 50 and over. Hitting whichever limit applies to you means you prevent the IRS from taxing that much of your income.
Now one thing you should know is that you technically don't have to finish funding your 2020 IRA by the end of the year. The IRS will actually give you until 2020's tax-filing deadline to make contributions, which means you'll have until April 15, 2021 to max out. But the sooner you make that move, the better. With the holidays coming up, you may be tempted to spend more than usual, but if you fund your IRA first, you'll avoid a scenario where you run out of money to do so.
2. Put back money you took out under the CARES Act
If you were impacted by the coronavirus pandemic, you were entitled to an IRA withdrawal of up to $100,000 under the CARES Act. If you removed money from your IRA earlier in the year but have since realized you can do without it, then it pays to put that money back.
Usually, removing funds from an IRA prior to age 59 1/2 results in a 10% early withdrawal penalty. Under the CARES Act, that penalty is forgiven, but if you have a traditional IRA, your CARES Act withdrawal will still count as taxable income. However, if you return that money to your IRA, you won't have to deal with taxes. Even if you can't put your entire CARES Act distribution back, you're better off returning some of that money than none of it.
3. Check up on your investments
The past year was a volatile one in terms of the stock market, so it's a good idea to see how your IRA investments have fared and make any changes you feel are necessary, especially right now, while stock values are still high. Unlike 401(k), which typically limit savers to a handful of investment choices, IRAs offer loads of options. You can invest your savings in mutual funds, index funds, or individual companies that align with your strategy, so take some time to assess your investment mix.
The better a job you do of managing your IRA, the more tax savings you stand to reap and the more long-term wealth you stand to grow. It pays to consider these moves before 2020 comes to an end -- especially since we don't know what's in store for 2021.