Tax day is growing ominously closer, with just over two weeks left before Americans will have to file their taxes. For many of us it's a burdensome time of the year, retracing our steps to find outdated receipts and reconciling our money spent and money earned. It can also be a lucrative time of the year for most Americans, since many will end up getting a federal refund.
For tax filers who owe, who expected a bigger refund, or simply didn't max out their Individual Retirement Account contributions in 2013, tax time can also be a time of the year when turning toward a Traditional IRA or Roth IRA can make a lot of sense.
Generally speaking, there are just a handful of deductions that you can take up to April 15 and still apply to your 2013 taxes. A contribution up to the $5,500 limit for a Traditional IRA is one of them. Traditional IRAs allow you an upfront tax deduction based on the amount contributed in exchange for paying taxes on the withdrawals beginning after age 59 1/2. You'll want to keep in mind, though, that these benefits do phase out based on your adjusted gross income.
The other option, of course, is a Roth IRA, which allows your profits to grow completely tax-free, but you'll get no upfront tax deduction in return. There are also income limitations for who can contribute to a Roth IRA. For filers looking to lower their taxable income for 2013 this isn't going to help, but for young adults who have time on their side, a Roth IRA could be a great idea.
With that in mind, today I'm offering up five last-minute IRA ideas with a varying degree of risk and reward in an effort for younger and older investors, as well as those who are more risk-averse and risk-willing.
Apple (AAPL 1.19%)
I'm not looking for any bonus points in originality by suggesting Apple for your IRA, but it makes a lot of sense merely from a cash flow perspective, especially if you're young. Apple is currently sitting on a mountain of $158.8 billion in cash and it's paying out $12.20 in annual dividends per share for a current yield of 2.3%. Over the past two years Apple has generated over $41 billion in free cash flow, meaning if it were able to keep up its current growth rate, or even if its growth rate stagnated, it could most likely generate in the neighborhood of $400 billion to $450 billion in cash just over the next decade. By comparison, Apple's current market value is only $479 billion. Assuming it can maintain its share of the pie through innovation Apple presents an intriguing value proposition that bodes well for the long-term investor.
Kinder Morgan (KMI 1.75%)
You may have heard of this stuff called oil and natural gas -- it's kind of a big deal in the United States. So big, in fact, that oil and gas drillers have delivered an increase in crude oil output, according to the Energy Information Administration, in each of the past five years. What this means is big demand for the middlemen like Kinder Morgan, which handle the pipelines, transportation, transmission, and storage of oil and natural gas. We're still discovering new shale deposits onshore and fields deep in the waters off the coast, but the big money is flowing toward infrastructure plays like Kinder Morgan. With a 5.3% yield it's going to satiate most income investors' appetites, and its below-average volatility will allow risk-averse investors to sleep well at night.
MasterCard (MA 1.50%)
For younger investors who are less concerned with dividend income and seeking higher growth opportunities, payment facilitator MasterCard might be the perfect solution. MasterCard has both credit and debit cards that bear its logo as it acts as an intermediary between merchants, banks, and customers. The end result is that MasterCard nets a merchant fee with each transaction and has absolutely no debtor liability since it doesn't lend money like traditional banks or lending institutions. Plus, the barrier to entry among payment processors is incredibly high, so market share among the big four within the industry is well protected. With much of the world still using cash, MasterCard has a multi-decade, double-digit growth opportunity at hand and may make a perfect buy-and-hold candidate for young adults.
Medtronic (MDT 2.04%)
Sometimes the smartest thing you can do as an investor is play the odds, and within the health-care sector we understand that baby boomers are aging and the world's overall population is growing. This means the need for medical devices ranging from pacemakers to spinal implants is only going to increase, making Medtronic, the world's largest medical device maker, a potentially intriguing buy. You'll probably find faster growth rates within the sector, but its 2% yield and specific focus on emerging markets makes Medtronic stand out above the pack. Similar to Apple, as long as it can maintain or build on its market share there's not much standing in the way of steady income and share price appreciation for the more risk-averse investor.
Starbucks (SBUX 0.69%)
Finally, why not consider a company that's completely manhandling all other competitors within its sector. The years of high-rate growth may be gone for Starbucks, but it still has a blend of U.S. expansion and emerging market introduction and expansion (such as in China and the remainder of Asia) where it can balance out double-digit growth potential overseas with low single-digit growth potential in the states. Starbucks also offers intrigue to all walks of investors because it maintains strong pricing power, is a leading menu innovator, and even partners with its primary rivals in order to drive business growth. With growing global brand recognition and a modest 1.4% yield, young and old investors may be able to grind out solid gains with Starbucks.