Kelly Bullis
Have you noticed how fast time goes as you get older? It’s human nature to put things off until later, especially if it takes money out of a bank account.
Are you in your late 30s or early 40s? Have you started your retirement savings yet? If your employer offers a retirement plan, start putting more into it until you reach the maximum allowed. But what if you don’t have an employer retirement plan available? Individual Retirement Accounts (called IRAs for short) were designed for such a problem.
Generally, you can contribute to a traditional IRA if you’re working, within annual limits. The contribution limit for 2023 is $6,500. You can add an additional $1,000 if you’re age 50 or older.
There are income limits on whether you can make a tax-deductible IRA contribution. For 2023, the phase-out for a plan participant occurs if your Adjusted Gross Income falls between $116,000 to $136,000 for couples and $73,000 to $83,000 for singles. If only one spouse is covered by a retirement plan, the other spouse can contribute to an IRA until AGI hits $218,000 and totally phases out at $228,000.
You are allowed to make a contribution for a prior year up until the tax filing deadline of April 15 of the following year. (Example: For 2022 contribution, you have until April 18, 2023 to fully fund it.) No extensions are allowed.
So why do an IRA? What if you contributed $6,500 to an IRA every year for 10 years, then bumped up to $7,500 a year for the next 20 years. Let’s assume your earnings on invested IRA funds averages only 4% per year. If your contributions are made monthly ($541.67 a month), you would accumulate an account balance of $407,864, including $212,864 in earnings. What if you could earn 8% per year on your IRA investments? The numbers jump up to $862,075. The average stock portfolio earns about 8% per year (sometimes higher, sometimes lower, but over the long term, about 8%).
So, getting back to the person who just turned 40, if you did the above, when you turn 70, you could have over $860,000 in your IRA. That is a nice start on helping with your retirement.
When Congress raises the contribution limit from time to time, these figures could go even higher.
So, what’s keeping you from starting a new habit of making monthly contributions to an IRA? You say that’s more than you can afford? Then what can you afford? Start with that and increase it every year until you hit the maximum. I bet you that within six months, you won’t even miss the money. You will have adjusted your lifestyle to match what is left over.
Have you heard? Prov 5:9-11 says, “How long will you lie there, O sluggard? When will you arise from your sleep? A little sleep, a little slumber, a little folding of the hands to rest, and poverty will come upon you like a robber, and want like an armed man.”
Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 882-4459. On the web at BullisAndCo.com. Also on Facebook.