William Creekbaum: IRAs: Contribute now toward your retirement
For the Nevada Appeal
Now that we’re deep in tax season, I believe it’s important to do all you can to maximize your retirement savings today in order to enjoy the retirement of your dreams tomorrow.
One strategy that I have consistently recommended to Nevada clients is to make your IRA contribution now as opposed to waiting. I’m willing to bet your tax adviser will think it’s something that many taxpayers should consider.
My rationale is that making regular contributions to your IRA is a good way to maximize your retirement savings. You have until April 18 to make your 2010 IRA contribution of as much as $5,000 and $6,000 if you are over the age of 50. And you also can make your 2011 contribution of an additional $5,000 ($6,000 if over age 50) at the same time – allowing a year or more of additional growth potential on your contribution.
Contributing to your IRA offers a number of advantages I believe are compelling. First, your earnings have tax-deferred growth potential. Second, you can make deductible contributions (subject to IRS eligibility rules). Lastly, you have access to a wide array of investment options.
I think you should treat your retirement as an expense and treat your retirement savings like a utility bill. A simple way to build your retirement savings even more is to setup an automatic IRA contribution schedule. Most financial institutions offer this service. For most, it’s a fast, free and flexible service that enables you to electronically make your IRA contribution from accounts at other financial institutions without the need to write checks, buy stamps or make trips to the mailbox. You can choose to set up a one-time transfer for this year or establish a recurring schedule to make your annual IRA contribution every year. You decide on the date and amount – your funds will be systematically transferred on your specified schedule. I think this is a fast, painless way to save for an expense you know is inevitable- retirement.
Here’s a strategy I think you ought to consider. If you routinely make your IRA contribution for a particular tax year by April 15 of the following year, you’re missing out on 15 months of additional growth potential on every contribution. During most historical periods, it pays to make your contributions as early as possible. A $5,000 IRA contribution made in January 2011 for tax year 2011 will earn about $400 more (at a hypothetical rate of 6 percent) than a $5,000 IRA contribution for tax year 2011 that is made in April 2012.
The earlier you start, the more likely you may meet your retirement goals. Don’t miss out on this painless way to gain additional growth potential.
• William Creekbaum, MBA, CFP, a Washoe Valley resident, is senior investment management consultant of Morgan Stanley Smith Barney LLC. He can be reached at William.firstname.lastname@example.org or 689-8704. Tax laws are complex and subject to change. Morgan Stanley Smith Barney LLC, its affiliates and Morgan Stanley Smith Barney Financial Advisors do not provide tax or legal advice. This material was not intended or written to be used for the purpose of avoiding tax penalties that may be imposed on the taxpayer. Individuals are urged to consult their personal tax or legal advisers to understand the tax and related consequences of any actions or investments described herein.