You've probably heard and seen the headlines that Americans are not making the right moves when it comes to saving for retirement. Whether it's saving in a workplace retirement plan like a 401(k) or saving in an IRA, not enough is being done to prepare for the future. In fact, a June 2016 study by TIAA shows that only 33% of adults have an IRA, and only 18% of individuals currently contribute to one.
If you fall into those statistics, and either don't have an IRA, or have one but aren't contributing, here's how you can start making progress today.
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First, if you have an employer-sponsored retirement plan and your company offers a matching contribution, then at the very least, you should contribute enough to earn the match. But if you're already contributing to your workplace retirement plan, or if you don't have access to one, then you should consider funding an IRA.
An IRA is a savings vehicle where your money has the chance to grow tax-deferred for decades. And unlike with a workplace retirement plan, where you may have a limited menu of investment options and fees that you can't control, with an IRA, you not only have unlimited investments available to you, but you can also control your fees.
For 2016 and 2017, the IRA contribution limit is $5,500 for individuals under age 50 and $6,500 for those who are age 50 or older. You can contribute to a traditional IRA or Roth IRA, or both in the same year, but your combined contributions still cannot exceed the annual limit.
Because there are yearly contribution limits, once a tax year has passed, you have lost the opportunity to save in an IRA for that year. For example, if your career spans about 50 years where you earn income, you can make only 50 contributions to an IRA during your lifetime.
The strategy
The good news is that you have until Tuesday, April 18, 2017, to still make your 2016 IRA contribution. And of course you can also make your 2017 contribution as well -- that's $11,000 you could stash into an IRA right now if you're under age 50.
Of course, you may be wondering where you'll get that money from, so here are a few strategies. If you have some extra money sitting in cash in a savings account, you can easily transfer that over to an IRA. Start with contributing for 2016, and put in as much as you can. Then, throughout the next year, work on meeting your contribution for 2017. Remember, you have until next tax day, which is Tuesday, April 17, 2018, to contribute for 2017. So if $5,500 seems daunting, try putting in about $460 a month for the next 12 months.
Going forward, because you have until tax day to make a contribution for the prior year, you can spread your contribution over 15 monthly payments -- from January through March of the following year. So, if you had started in January 2017, you could be putting in about $370 a month until March 2018 to fulfill your 2017 contribution.
If you're not contributing to an IRA, you are not only missing out on saving for retirement in a tax-efficient way, but for every year that passes, you are losing out on saving opportunities forever. So start making the right moves for your retirement today, and don't miss out on saving for another year.
