Opening an individual retirement arrangement, or IRA, is an important step in reaching your retirement goals. And whether you're opening your first IRA, or opening a new IRA for one of a handful of reasons, it may be something you need to do today. We asked three of our top retirement and investment planning contributors to offer some insight into opening an IRA, and they each gave us a big reason why today could be the day for you to open an IRA.
Here's what they had to say.
It's not too late for 2015 contributions
Selena Maranjian: A key reason to open an IRA today is because even though we're now in 2016, it's not yet too late to make an IRA contribution for the 2015 year. The more you contribute to your IRA, the bigger it can grow and the better it can serve you in retirement. For example, if you contribute $5,000 to an IRA each year for 19 years and it grows at 10% annually, you'll end up with about $281,375. If you managed 20 years of $5,000 contributions, you'd end up with about $315,000. That's a difference of more than $33,000 -- from just a one-year difference.
The contribution deadline for IRAs is typically the day on which your tax return for that year is due -- April 15 or soon after. For 2015 contributions, the deadline for most taxpayers is April 18, 2016. (In Maine and Massachusetts, it's April 19.)
Note that this means you can make contributions for two tax years in a single year. For that reason, if you're making a 2015 contribution in 2016, be sure to specify the year it's to be applied to on your check and any accompanying paperwork.
For best results, make your IRA contributions as early in each tax year as you can -- such as in the first few months of the year. That will cut down on any possible confusion and will also allow your money to work longer for you, growing.
Brokers offer great incentives this time of year
Dan Caplinger: Contributing to an IRA is always a good idea, but brokerage companies know that most investors wait until the last minute before they think about saving for retirement. As a result, you'll often find some lucrative deals to entice you to open new accounts with particular brokers.
These deals usually come in two types. Some brokers will offer you a certain number of free trades as part of opening an IRA. That can come in handy when you're first getting an IRA set up, as you will need to buy your initial positions in the stocks, funds, and other investments you decide to make. However, the broker hopes that you'll get in the habit of trading frequently, generating commissions once you use up all your free trades or the initial introductory period ends.
Other brokers offer payments in cash, gift cards, or other goodies in exchange for opening an account. Typically, the largest cash payments will come from those who roll over account balances either from other IRAs or from employer-sponsored retirement plans. If you're only making your normal contribution of $5,500 ($6,500 if you're 50 or older), then you shouldn't expect huge payments.
Investors shouldn't let these perks have a huge influence on their decision-making. If you're going to open an IRA with a broker anyway, though, it makes sense to get whatever freebies they're handing out. Go here to find the right online broker.
Time is your biggest advantage, and each day you wait is a day you lose
Jason Hall: If you really want to have a high-quality retirement, it's going to take money. And the best way to grow your wealth is to invest as much as you can for as long as you can, while also taking advantage of things you can control, such as the tax advantages of traditional and Roth IRAs. To the contrary, the longer you put it off, the more it will take to "catch up."
For example, if you're 45 and contribute the maximum $5,500 to an IRA this year, it would be worth $42,000 at age 67, based on the 9.5% historical annualized stock market returns. But if you were to wait until 50 before opening an IRA and putting aside retirement savings, that same $5,500 would only be worth $27,000.
You read that right -- only five extra years could grow that $5,500 by $15,000 more, and that's not even factoring in the tax benefits you can get with an IRA, including potentially lower income tax now or in retirement, as well as tax-deferred growth.
Sure, there will be years when the market goes up more or less than the average, and years that it goes down, but nobody can predict which years will be good and which will be bad. Time in the market is key, not timing the market.
Stop putting it off. Open an IRA today.