Play “Catch Up” With Your IRA
As you approach retirement, take advantage of additional tax-free benefits. People age 50 or older can make additional IRA contributions. Instead of the standard $6,000 a year contribution limit, those ages 50+ can contribute an additional $1,000 each year.
Investors over 50 are also generally permitted to make catch-up contributions to their employer-sponsored 401(k)s or self-employed SIMPLE-IRAs.
Maxing out contributions to these retirement accounts and taking advantage of their tax benefits can be effective ways to grow and compound investments quickly. Compounding is when you earn money on your original investment and on any earnings from that original investment.
Invest in the Right IRA for Your Retirement Strategy
While you’re looking into additional contributions to your IRA, make sure you’re picking the right type for your retirement strategy.
These guidelines can be a general rule of thumb:
- A Roth IRA could be the right fit if you’re in a lower tax bracket and anticipate your income (and tax rate) will go up before retirement.
- A traditional IRA could be just the ticket if you think your tax rate will be lower than its current rate when you’re ready to withdraw the investment.
Choosing between the IRA types depends on where you are now, how you anticipate your income may grow, and when you plan to retire or begin withdrawing from your retirement accounts.
Don’t Forget Your HSA