Five Myths That Should Not Stop Your 2015 IRA Contribution
By Sarah Brenner, IRA Analyst
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Have you made your 2015 IRA contribution? If not, why not? Here are five myths that are commonly cited as reasons for not contributing to an IRA. Don’t miss out on your 2015 IRA contribution because you wrongly believe one of them applies to you.
- Too Late
You might think that because 2015 is over, it is too late to make an IRA contribution for that year. This common misunderstanding is completely wrong. The deadline for contributing to an IRA for 2015 is the federal income tax filing deadline. For most, that is April 18, 2016. You still have time! One caveat, if you have an extension to file your federal income tax return, your deadline to make your 2015 IRA contribution is still April 18, 2016 so don’t wait too long!
- Too Old
You may be familiar with the rule that says you may not make a traditional IRA contribution in the year you reach age 70 ½ or any year after. While this true for traditional IRAs, there are other IRAs out there available to savers of any age. Your age is not a barrier to making Roth IRA contributions, if you are otherwise eligible. If you are in your eighties with a part-time job and your income is below the allowable limits for the year, a 2015 Roth IRA contribution is an option for you. Age is also not a barrier for a SEP IRA or a SIMPLE IRA contribution when you work for a company that has this type of plan.
- Too Young
Retirement may seem awfully far away when you are young. You may have other immediate pressing financial obligations like student loans, health insurance premiums, and high rent payments. However, you are never too young to start saving for retirement. In fact, a long time period before retirement is a huge advantage when it comes to retirement savings. It is something that you can never get back later! Use that long time frame to your advantage while you have it. A small amount contributed to an IRA today can grow substantially over 30 or 40 years. Your 2015 IRA contribution can get you started.
- Gave at Work
You have a 401(k) at work and you faithfully make contributions each year. You are lucky in that your employer even provides a matching contribution. You might think that you don’t need or maybe are not even eligible to make a 2015 Roth IRA contribution. This is not the case. Your participation in the 401(k) does not prevent you from making Roth IRA contributions if you are otherwise eligible. It also does not prevent you from contributing to a traditional IRA. Your ability to deduct your traditional IRA contribution may be affected by your participation in the 401(k), but this will only happen if your income is above certain levels for the year. When it comes to retirement, every little bit helps. Don’t put all your eggs in one basket and rule out an IRA or Roth IRA contribution just because you participate in a plan at work.
- Busy with the Kids
You are a stay-at-home parent and you are busy with the kids. Your days are filled with potty training, stroller pushing and reading bed time stories. Despite all the hours you are putting in, you do not have any taxable compensation for 2015. You may think this prevents you from saving for retirement with an IRA. Not so fast! If your spouse has compensation you can make a spousal IRA contribution for 2015. If fact, if your spouse has enough compensation and you are both otherwise eligible, you can each make an IRA contribution of $5,500 ($6,500 if age 50 or over in 2015) for the year.
Now is the Time
Changed your mind? If you are reconsidering that 2015 IRA contribution, now is the time to act. If you have any questions about your IRA contribution, consider a consultation with a knowledgeable financial advisor.
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