Take Care of Business. Fund Last Year’s IRA Today.

Motorcycle JumperIn 1974, Evel Knievel tried to jump across the Snake River Canyon, BTO’s “Takin’ Care of Business” was at the top of the charts, and Congress took care of business by passing the Employee Retirement Income Security Act (ERISA) creating the IRA. You remember that, right?

That year my grandparents lived in Crystal, MN. I remember sitting around the kitchen table one day with aunts, uncles, grandparents, and others when Jennifer, my aunt, who was maybe 20 at the time said to me, “You know, if you start an IRA, you could be a millionaire someday” or words to that effect.

I didn’t know much about IRAs then, but even at 11 years old I knew that being a millionaire was probably a good thing.

A lot has happened to the IRA over the past 40 years.  Today, 36 million Americans own over $5.7 trillion in IRA assets (source: Investment Company Institute, June 30, 2013.)

Fund your 2013 IRA now. The key to potentially accumulating $1 million or more in an IRA is to start as soon as possible. You can even fund last year’s IRA today, if you haven’t done so already. The IRS allows IRA contributions up to your tax filing date – typically April 15th of the following year. To find out if you are eligible to make a contribution, how much you can contribute, and whether or not your deduction is tax deductible, consult the IRS charts below.

2013/2014 IRA Contribution Limits                                   

Individual                                                                  $5,500

Catch-up for those age 50+                                     $1,000

Traditional IRA. Contributions to a traditional IRA may be tax deductible. If you ARE covered by a qualified retirement plan at work and …

If Your Filing Status Is… And Your Modified AGI Is… Then You Can Take…
single or head of household $59,000 or less a full deduction up to the amount of your contribution limit.
more than $59,000 but less than $69,000 a partial deduction.
$69,000 or more no deduction.
married filing jointly orqualifying widow(er) $95,000 or less a full deduction up to the amount of your contribution limit.
 more than $95,000 but less than $115,000  a partial deduction.
 $115,000 or more  no deduction.
married filing separately  less than $10,000  a partial deduction.
 $10,000 or more  no deduction.
 If you file separately and did not live with your spouse at any time during the year, your IRA deduction is determined under the “Single” filing status.

If you are NOT covered by a qualified retirement plan at work and …

If Your Filing Status Is… And Your Modified AGI Is… Then You Can Take…
singlehead of householdor qualifying widow(er) any amount a full deduction up to the amount of your contribution limit.
married filing jointly or separately with a spouse who is not covered by a plan at work  any amount a full deduction up to the amount of your contribution limit.
married filing jointly with a spouse who iscovered by a plan at work $178,000 or less a full deduction up to the amount of your contribution limit.
more than $178,000 but less than $188,000 a partial deduction.
$188,000 or more no deduction.
married filing separately with a spouse who is covered by a plan at work  less than $10,000  a partial deduction.
 $10,000 or more  no deduction.
If you file separately and did not live with your spouse at any time during the year, your IRA deduction is determined under the “Single” filing status.

Roth IRA. Roth IRA’s are funded on an after-tax basis, meaning there is no tax deduction for your contribution. However, distributions at retirement are tax-free. Contributions to a Roth IRA are not limited by whether or not you have a retirement plan at work, but they may be limited due to your income. If you have earned income, you can contribute to a Roth IRA…

If your filing status is… And your modified AGI is… Then you can contribute…
married filing jointly orqualifying widow(er)

 < $178,000

 up to the limit

 > $178,000 but < $188,000

 a reduced amount

 >  $188,000

 zero
married filing separately and you lived with your spouse at any time during the year

 < $10,000

 a reduced amount

 > $10,000

 zero
singlehead of household, ormarried filing separately and you did not live with your spouse at any time during the year

 < $112,000

 up to the limit

 > $112,000 but < $127,000

 a reduced amount

 > $127,000

 zero

Source: Internal Revenue Service

As you can see from the charts above, that’s a lot of “ifs”, “ands” and “buts”. To find out if an IRA is right for you, email me with the subject line “IRA contributions”. If you prefer to go straight to the source, visit www.irs.gov and download publication 590.

Now you know whether or not you can do an IRA. Next week learn 5 reasons to start a Roth IRA – right now.

 

 

Disclosure:  Investing involves risk including the potential loss of principal.  No investment strategy can guarantee a profit or protect against loss in periods of declining values. A Roth IRA distribution is qualified if you’ve had the account for at least five years and/or the distribution is made after you’ve reached age 59 ½  , because of your total and permanent disability, in the event of your death or for first-time homebuyer expenses.  Distributions made prior to age 59 ½ may be subject to a federal income tax penalty. This information is not intended to be a substitute for specific tax advice.  I suggest that you discuss tax issues with a qualified tax advisor.

 

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