How to Maximize Your IRA Contributions

Even if you have an employer-sponsored 401(k), incorporating a tax-advantaged traditional or Roth IRA into your retirement plan is beneficial. By making timely contributions that will compound over the years, your IRA will help build a solid foundation for your golden years. In this article, we’ll review tactics to ensure you’re maximizing your IRA investments.

Start Early

Because IRAs are tax-advantaged retirement accounts, there are annual contribution limits set forth by the government. That means the sooner you begin contributing to your IRA, the more money you can invest before you hit your golden years. And it gives your money more time to grow over the years.

Your IRA investments are compounded, which means the earnings are reinvested to generate additional returns. Even if you cannot contribute the maximum amount each year, smaller contributions can still have a significant impact given enough time. Start contributing to your IRA as early as possible to maximize the amount of time your money can grow.

Don’t Wait Until Tax Season

Many people contribute to their IRA once per year, typically during tax season in April. However, this approach reduces your earning potential throughout the year.

Instead, you can maximize your investments by depositing the maximum contribution at the beginning of the year. A more common approach is investing a set amount monthly throughout the year – reaching the maximum contribution limit at year-end.

Automate Your Contributions

If the idea of making a large lump sum deposit to your IRA each year seems daunting, opt for the easier approach, and make smaller contributions throughout the year instead. For example, the IRA contribution limit for 2023 was $6,500. If you are paid biweekly (26 paychecks annually), you could contribute $250 per paycheck to reach the limit for the year.

Again, even if you cannot invest the maximum annually, every bit helps – especially as your funds compound over the decades. To put your contributions on autopilot, consider using either payroll deductions or automatic transfers.

• Payroll Deduction: A specific amount is automatically transferred from each paycheck into your IRA on payday.
• Automatic Transfers: Like payroll deduction, however, you choose the date that the transfer will take place monthly.

Both options ensure you’re actively saving for your retirement without needing to monitor or remember to transfer funds regularly.

Consider Your Full Portfolio

Your IRA might only be part of your retirement funds. For example, you may have additional funds set aside in a 401(k), invested in stocks and bonds, placed in mutual funds, or elsewhere. If you have other investments, it’s critical to consider your entire financial portfolio when assessing your risk levels.

Review your financial goals and what you hope to achieve with each account type. Then, determine which accounts should be more conservative. There are many funds where IRAs can be invested, including traditional savings or share certificates (CDs), Treasury bills, stocks and bonds, mutual funds, and even precious metals like gold.

Understand the Limits

It’s essential to keep in mind that there are limits on how much money you can contribute to your IRA annually. The restrictions typically change yearly and will be announced by the IRS. For example, the maximum IRA contribution limit for 2024 increased by $500 from 2023.

• 2023: IRA limit per individual = $6,500 
• 2024: IRA limit per individual = $7,000

If you’re aged 50 years or older at the end of the tax year, you can participate in catch-up contributions. For both 2023 and 2024, these limits were set at $1,000 above the standard limit.

• 2023: IRA age 50+ catch-up limit = $7,500 
• 2024: IRA age 50+ catch up limit = $8,000

Plug the maximum contribution limit into your budget. If you cannot afford to make the maximum contribution annually, that’s ok. Every bit helps and has the potential for significant earnings over the long term.

We’re Here to Help!

Every decision is important in your journey toward financial security, and your approach to IRA contributions is no exception. Whether you’re an experienced investor or just beginning, maximizing your IRA contributions is a step toward a more secure and prosperous future. Your financial well-being is our top priority. Let’s work together to create a brighter financial future.

If you want to learn more about IRAs or have other retirement questions, we’re prepared to help. Please stop by any of our convenient branch locations or call 888-777-9982 to schedule an appointment.

https://www.irs.gov/newsroom/401k-limit-increases-to-23000-for-2024-ira-limit-rises-to-7000