How Much Money Can I Contribute To My Individual Retirement Accounts?
Tax season is upon us and one deduction that people do not take enough advantage of are retirement accounts.
There are several different kinds of accounts and which one you will use is depending on your personal and business finances.
We will start with the most common accounts and I am assuming you do not participate in a 401K at work.
For roughly 65% of the people in America they have only 2 options, a traditional IRA or a Roth IRA.
A traditional IRA is an account where you can contribute up to the maximum and have that amount be tax deductible.
The capital gains in the account will be taxed as regular income in the future.
A Roth IRA contribution is not tax deductible but the account does grow tax deferred, meaning that any amount of growth in the account will be exempt from capital gains tax.
The advantage of individual accounts are that you can control what you purchase inside of them; stocks, bonds, mutual funds or annuities.
In 2013, an individual is allowed to put in a maximum contribution of $5,500 in a traditional IRA and have the amount be tax deductible.
The maximum contribution for a Roth IRA is $5,500.
There are also contributions called catch ups that allow people over 50 to contribute an additional $1,000 per account.
The reason for the catch up provisions is to assist people near retirement age the option to save more.
These numbers are subject to amount of income an individual makes at $112,000 filing a single return and $173,000 filing a joint return.
Of course if you work for a company and they offer a 401K that should be your first option for a retirement account, generally speaking, because most employers provide some sort of matching contributions to the accounts.
In 2013, an individual can contribute up to $17,500 to their 401K and the employer can contribute up to $33,500.
Now most employers will not offer such a generous matching contribution but most will provide a 3%-5% match, which over the course of a your working career can add up significantly.
The biggest drawback to a 401K account is there are hidden fees inside the accounts that can add up to almost 1.
5%.
So you have to weigh the company contribution with the fee structure of the 401K but in general you usually come out ahead with a company contribution.
I would recommend that anyone who owes money to the government should consider a contribution to a retirement account if they have not made the maximum contribution.
Remember you have until April 15th of each year to make a contribution, so timing should never be an excuse.
I would rather write myself a check than the government any time.
We all want to avoid paying taxes and this way you are paying yourself and you will have a growth benefit years down the road.
There are several different kinds of accounts and which one you will use is depending on your personal and business finances.
We will start with the most common accounts and I am assuming you do not participate in a 401K at work.
For roughly 65% of the people in America they have only 2 options, a traditional IRA or a Roth IRA.
A traditional IRA is an account where you can contribute up to the maximum and have that amount be tax deductible.
The capital gains in the account will be taxed as regular income in the future.
A Roth IRA contribution is not tax deductible but the account does grow tax deferred, meaning that any amount of growth in the account will be exempt from capital gains tax.
The advantage of individual accounts are that you can control what you purchase inside of them; stocks, bonds, mutual funds or annuities.
In 2013, an individual is allowed to put in a maximum contribution of $5,500 in a traditional IRA and have the amount be tax deductible.
The maximum contribution for a Roth IRA is $5,500.
There are also contributions called catch ups that allow people over 50 to contribute an additional $1,000 per account.
The reason for the catch up provisions is to assist people near retirement age the option to save more.
These numbers are subject to amount of income an individual makes at $112,000 filing a single return and $173,000 filing a joint return.
Of course if you work for a company and they offer a 401K that should be your first option for a retirement account, generally speaking, because most employers provide some sort of matching contributions to the accounts.
In 2013, an individual can contribute up to $17,500 to their 401K and the employer can contribute up to $33,500.
Now most employers will not offer such a generous matching contribution but most will provide a 3%-5% match, which over the course of a your working career can add up significantly.
The biggest drawback to a 401K account is there are hidden fees inside the accounts that can add up to almost 1.
5%.
So you have to weigh the company contribution with the fee structure of the 401K but in general you usually come out ahead with a company contribution.
I would recommend that anyone who owes money to the government should consider a contribution to a retirement account if they have not made the maximum contribution.
Remember you have until April 15th of each year to make a contribution, so timing should never be an excuse.
I would rather write myself a check than the government any time.
We all want to avoid paying taxes and this way you are paying yourself and you will have a growth benefit years down the road.
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