Money Advice

Don’t shortchange your retirement by making this simple IRA mistake

Posted by The Simply Money Advisors Team on Jan 9, 2019 8:24:33 AM

Some of the most successful retirees we see at Simply Money Advisors pay attention to the little details long before they retire. Increasing 401(k) contributions when IRS limits go up. Refinancing their mortgage to reduce their monthly payment. Tracking expenses.

If you want to follow in their footsteps, we have a question for you: Have you thought about your traditional IRA or Roth IRA lately, or are they only something that cross your mind around tax time?

Because a lot of times, contributing to one of these accounts is an afterthought. This is especially true with a traditional IRA since it typically uses pre-tax money, meaning it lowers your taxable income.

Essentially, for many people, contributing to a traditional IRA solely becomes a last-ditch strategy to lower their tax bill.

While this isn’t ‘wrong,’ per se, it’s still shortsighted. Because if this describes what you’re doing, just know that this habit could be hurting your future self.

Here’s what’s going on: the rules for traditional IRAs and Roth IRAs give you 15 months to contribute for a calendar year, with the deadline being Tax Day of the following year. This means, for example, you actually have until April 15, 2020, to make your full 2019 contribution ($6,000 if you’re younger than 50; $7,000 if you’re 50 or older).

But waiting until that deadline in the following year means you’ve waited 15 months from the moment at which you can legally start to invest your money! If this is how you approach contributing, realize that you’re constantly playing catch-up, not to mention you’re giving your money less time to grow and compound.

In fact, a study from Vanguard[1] found that contributing to your traditional IRA in April of the following year could mean you’ll have 10% less over 30 years than if you had contributed in January of the previous year.

Why shortchange yourself when the situation is completely avoidable?

The Simply Money Point

We know life can get busy. Your IRA probably isn’t top of mind right now, especially since all the holiday shopping bills are beginning to hit your mailbox or inbox.

But you should take the time to pay attention to the little details since every little bit helps when it comes to retirement. This means, if you can, making your full contribution to your traditional IRA or Roth IRA for 2019 as soon as possible. Don’t wait until April of next year.

Otherwise, you’re just imposing a ‘procrastination penalty’ on yourself – and potentially losing out on future retirement income.

To learn more about retirement planning – including the 7 simple steps to get you on the right track – visit our Retirement Resources library.

Take me to Retirement Resources

 

[1] https://investornews.vanguard/delaying-ira-contributions-until-april-can-cost-you/

Topics: Retirement Planning

Disclaimer

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Simply Money Advisors), or any non-investment related content, made reference to directly or indirectly will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, this content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained here serves as the receipt of, or as a substitute for, personalized investment advice from Simply Money Advisors. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Simply Money Advisors is neither a law firm, a certified public accounting firm, nor a tax advisory firm and no portion of the blog content should be construed as legal, accounting, or tax advice. Please consult your own attorney, accountant, and tax advisor for legal, accounting, and tax advice. A copy of the Simply Money Advisors’ current written disclosure statement discussing our advisory services and fees is available for review upon request. Advisory services offered through Simply Money Advisors, a SEC registered investment adviser. Insurance services are offered through Simply Money Insurance Agency, a separate entity from Simply Money Advisors. Simply Money™ and the spiral symbol are trademarks of Simply Money IP Holdings, LLC.

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