Originally written December 28, 2018. Updated on December 30, 2019 with current contribution limits.
With each new year comes new opportunities to set goals to improve your habits, health or wealth. While we can’t help you hit the gym more often, we can offer tips for improving your finances.
When you’re young, it’s easy to brush off advice about planning and saving for retirement. Opening an Individual Retirement Account, or IRA, is a great way to save for the future, and the earlier you get started the more time your savings has to grow.
IRAs offer tax benefits. Depending on the type you choose, taxes on your contributions may be deferred until you begin withdrawals, usually in retirement. If you think you’ll be in a higher tax bracket by retirement, you might choose an IRA that allows you to pay taxes on the contributions you make now in order to avoid higher taxes later.
Compounding growth is one benefit of IRAs. Compound interest is the addition of earnings to the principal amount you contribute. In other words, you earn interest on the interest generated.
An Individual Retirement Account is independent of an employer. For individuals who don’t have access (or don’t want to commit) to an employer-sponsored savings plan, an IRA can be a valuable tool to add to your toolbox. While they don’t qualify for an employer match, like a 401(k) might, an IRA is an alternative that lets you save for retirement on your own terms.
It’s not too late to max out your contributions for 2019. You have until April 15, 2020 to contribute to an IRA for the 2019 tax year. The maximum amount you may contribute for 2019 is $6,000 for individuals under age 50, and $7,000 for those over 50.
Preparing for the future at any age may seem daunting. However, like most things in life, the sooner you begin, the better prepared you’ll be when it really counts.