The Right Time to Contribute to an IRA
By Cindy Cabbage
Have you ever noticed that about this time every year people start talking about IRA’s? That’s because for a lot of people, IRA’s are connected to filing their income taxes. Maybe for you that doesn’t make much sense, but there is a reason. If you just don’t see it, keep reading and hopefully you can learn more about IRA’s, their relationship to taxes, and the reasons why now is a great time to make an IRA contribution.
What Is An IRA?
An IRA is an acronym for an individual retirement account. These accounts are special because as the money invested in them grows, the interest is not taxed. Instead the full amount of interest earned is allowed to continue compounding without having any tax liability.
What Does an IRA Have to Do with Taxes?
In addition to the benefit of an IRA growing without being taxed, there is an additional tax advantage for some IRA’s. Contributions to traditional IRA’s can be deducted from your income tax, thereby reducing that year’s tax liability. That is why tax time is usually the time people are thinking about making a contribution to their IRA’s. (Please note that this benefit does not apply to Roth IRA’s. Money contributed to Roth IRA’s is taxed going in but then not taxed when taken out. On the other hand, tax is paid on the money from a traditional IRA at the time of distribution.)
Why Does It Make Sense to Contribute to an IRA or Start One Today?
If you have an IRA or are thinking about starting one, contributions attributable to 2019 can still be made until April 15, 2020. This may provide you with a tax benefit now, depending on your situation and the type of IRA you are contributing to. However, in any case, you will be improving your future retirement situation.
Whether you are young or old, it’s never too early (or too late) to start saving for retirement. Likewise, no matter where you are on life’s journey, now is always a good time to continue contributing to your retirement accounts. The more you contribute along the way, the more you will have to make your golden years more golden. Plus, some people may be able to enjoy a tax benefit now (though you’ll have to talk to your qualified tax preparer to find out if you’re included in that group). Federated Bank offers both traditional and Roth IRA’s, and we will be happy to help you set one up.
