Four Ways to Maximize the Value of Your IRA
Individual retirement accounts (IRAs) continue to be one of the most powerful ways to accumulate funds for a financially secure retirement. The keys to maximizing the ultimate value of your IRA are simple – contribute as much as you can, contribute as early as you can and earn as much as you can.
Contribute up to $5,000 for 2008 and 2009
You can contribute to a regular IRA regardless of your income and it may be tax-deductible if you are not a participant in a company sponsored plan or if your Modified Adjusted Gross Income (MAGI) is below certain levels. For single return filers in 2008, contributions are fully deductible if your MAGI is below $53,000, partially deductible with MAGI between $53,000 and $63,000 and not deductible with MAGI above $63,000. The limits for joint filers are $85,000, $85,000 to $105,000, and $105,000.
For single return filers in 2009, contributions are fully deductible if your MAGI is below $55,000, partially deductible with MAGI between $55,000 and $65,000 and not deductible with MAGI above $65,000. The limits for joint filers are $89,000, $89,000 to $109,000, and $109,000.
Roth IRA contributions are not deductible, but can be made by those with MAGI under certain levels. For single return filers in 2008, full contributions are allowed if your MAGI is below $101,000, partial contributions with MAGI between $101,000 and $116,000 and not allowed with MAGI above $116,000. The limits for joint filers are $159,000, $159,000 to $169,000, and $169,000.
For single return filers in 2009, full contributions are allowed if your MAGI is below $101,000, partial contributions with MAGI between $105,000 and $120,000 and not allowed with MAGI above $120,000. The limits for joint filers are $166,000, $166,000 to $176,000, and $176,000.
Consult your tax advisor to determine how these rules may apply to you.
Take Advantage of the Catch-up Provision
For 2008 and 2009, individuals age 50 and above can contribute an extra $1000 to their IRAs. For someone that turned age 50 in 2009 and that makes an extra $1000 contribution for 15 years, from 2007 until they retire at age 65, the extra accumulation would be over $25,000 assuming they earned 7% on their funds.
Make Contributions Early to Accumulate More
The latest you can make 2008 contributions is April 15, 2009 (or the extended due date of your tax return). The earliest you can make 2009 contributions is January 1, 2009. By making your contribution early, you are more likely to make an extra contribution over your working career and it adds up. For someone age 30, it can mean an extra $29,004 (assuming an earnings rate of 6%). For a 45 year old, the extra funds could amount to over $12,000.
Invest Your IRA Wisely
Your IRA is, or will become, a significant part of your net worth. How it is invested deserves the same attention you give your other investments. Be sure to include your IRA in your overall investment planning and apply the same principles of asset allocation, diversification and risk tolerance. You will ultimately be responsible for your retirement, and the decisions you make on managing your investments are important. Doing your homework and using the services of a qualified professional can make a large difference.