The start of a new year is always an exciting time to think about goals you want to tackle.
If you haven't added Roth IRA (individual retirement account) contributions to your 2023 goals, find out if you qualify and then create your game plan. Contributing to a Roth IRA in 2023 can help position you to collect tax-free income during retirement.
Here are five actions you can take right now to crush your Roth IRA goals.
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1. Develop your Roth IRA goals
It's hard to make progress toward any goal if you haven't clearly defined where you want to go. Before you dive into your Roth IRA game plan for the year, take a step back and answer these questions:
- What type of lifestyle do you want to live during retirement?
- How much money will you need to comfortably live your desired lifestyle?
- Will you have other sources of income during retirement?
- How much do you expect to pay in taxes during retirement?
- How much money do you expect to earn in 2023?
You most likely won't know the exact answers to these questions. The point is to help you get a ballpark figure so you can set realistic expectations and plan accordingly.
These numbers may motivate you to stash away more money in a Roth IRA in 2023 to help you get closer to your retirement goals. Also, if you expect your income to jump in the future, you may want to take full advantage of a Roth IRA in 2023 while you are still under the income limits.
2. Determine your Roth IRA contribution
The Roth IRA contribution limits increased for 2023, allowing you to tuck away up to $6,500 if you're under 50 and enjoy an extra $1,000 catch-up contribution after you turn 50. However, you can't contribute more than your earned income for the year.
You can contribute the maximum amount to a Roth IRA, or you can contribute less based on your financial situation. Review your income, expenses, debt, and retirement goals to determine how much you can realistically contribute to a 2023 Roth IRA.
3. Set your contribution deadline
You can make 2023 Roth IRA contributions anytime between Jan. 1, 2023, and April 15, 2024. But that doesn't mean you should wait until the last minute to add money to your Roth IRA.
You can set a personal Roth IRA contribution deadline of July 1, 2023, if you want to check the box on your retirement goals early in the year. However, if you have other financial priorities, you can spread your Roth IRA contributions over a longer period of time, so you won't have to allocate a chunk of money toward your savings at the beginning of the year.
It's important that you set a deadline that's realistic and motivational. If you're not excited about meeting your Roth IRA deadline, you face the risk of pushing your goals to the side.
4. Automate your Roth IRA success
The easiest way to crush your goals in 2023 is to automate the process. Set up recurring deposits from a checking account to your Roth IRA and watch your account balance get fatter every month.
Let's say you're 45 years old, and you want to contribute the maximum amount ($6,500) to a Roth IRA. You can set up automatic transfers of about $541 from a checking account to your Roth IRA for 12 months. That way, you can meet your Roth IRA contribution goals without lifting a finger.
5. Make smart investments
A Roth IRA gives you flexibility to invest in assets of your choice, including dividend-paying stocks and exchange-traded funds (ETFs). You can even invest in alternative assets like tax liens and real estate if you have a self-directed Roth IRA.
Gain access to the resources you need to do quality research and invest in assets that you understand. Don't be tempted to invest in the hottest stock out there to grow your portfolio overnight. Align your investments with your goals, risk tolerance, and time horizon to ensure you're maximizing your Roth IRA potential.
A few steps away from Roth IRA success
Your 2023 Roth IRA victory will depend on the goals you set now. Set goals that inspire you to take action, remain consistent, and stay focused.
The earlier you get the ball rolling, the easier it will be to crush your 2023 Roth IRA goals and get closer to the life you dreamed of during retirement.
