Financial Planning Tips
February Tip: It's Not Too Late to Make an IRA Contribution for 2011
Extended IRA season is here! Even though the calendar reads 2012, you can still make a contribution to your IRA for 2011. You have until April 17, 2012—this year's tax filing deadline—to contribute, boosting your retirement savings and possibly reducing the amount of income tax you owe. As you begin to gather up your tax statements, be sure to consider the advantages of making a 2011 IRA contribution.
What are the tax benefits of making an IRA contribution today?
As you know, the earnings on contributions to a traditional IRA grow tax-deferred until you begin taking distributions, while a Roth IRA's earnings grow tax-free for life.
With a traditional IRA, you may also be able to deduct the contribution amount itself from your income taxes. Whether or not you're eligible for this up-front tax deduction depends on your marital status and adjusted gross income. (You can't deduct Roth IRA contributions from your income taxes.)
Of course, tax deductions aren't everything. If your adjusted gross income prevents you from making a tax-deductible contribution to a traditional IRA, now's still a great time to contribute and continue working toward your retirement goals. Plus, IRAs typically provide some creditor protection, an attractive benefit for physicians and other professionals who face significant liability risks. You may also wish to speak with a financial advisor about converting your traditional IRA to a Roth IRA.
How much can you contribute?
The annual contribution limit for traditional and Roth IRAs is $5,000, or $6,000 for those over 50. If you're under age 50, you can contribute up to $10,000 between now and the tax filing deadline—$5,000 for 2011 and $5,000 for 2012. Married individuals filing a joint return can each make a contribution, doubling the limit to $10,000 or $12,000, depending on age.
If you're self-employed or a small business owner, you may be able to contribute up to $49,000 into a small business retirement plan, depending on the plan type and other factors.
What if you've already filed your 2011 return?
Even if you've already filed your income taxes, you can still make an IRA contribution for 2011. If you decide you would have benefited from contributing to your IRA, simply make a contribution and file an amended 2011 federal income tax return by the April 17 deadline.
So, what are you waiting for?
While extended IRA season brings the topic to the fore, contributing to your IRA is a smart move at any time of the year. After all, the sooner you make an IRA contribution, the sooner you can start earning investment income for retirement!
And remember, while saving for retirement may seem overwhelming at times, you don't need to go it alone. A financial advisor can counsel you on the most appropriate type of IRA for your situation and assist you in creating a retirement savings strategy to help you pursue your long-term goals.
View the Financial Tips Archive
Last Updated: 02/14/2012
|
|
Fact vs. Fiction
We understand that it can be tricky navigating through the world of financial services. Everyone seems to have an opinion, and it can become difficult knowing what to believe. We've created this series, "Financial Fact vs. Fiction," as a way to present and debunk some of the most popular financial myths.
Fiction: I no longer use one of my credit cards, so I should close the account.
Fact: Although you may feel obliged to close a credit card account that you no longer use, this may not be the best option for your credit score.
First, consider that the history of the account is part of your credit score. And if you have a good, long history of paying your bills on time, you'd be better off keeping the account open. Second, understand that closing the account will lower the total amount of credit you have available, which could, in turn, increase your utilization ratio (total debt/total available credit). A higher ratio is bad for your credit score.
If you need to close an account and have multiple credit cards to choose from, consider closing the newest account first. Keep in mind that some credit card companies will close your account themselves if you've been inactive for a lengthy period of time. You may want to read the terms of your agreements to see if it makes sense to periodically use a dormant card and quickly pay off the bill.
View the Fact vs. Fiction Archive
Last Updated: 02/16/2012
|
