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I originally posted this a couple of years ago as a reminder and it’s time good advice if you have a bit more time before you file your taxes. Saving up for retirement and getting a tax break is a great deal if you qualify for it.

Deadlines for Contributing to Your IRA

Tax day, April 15, is fast approaching and I know some people are still working on getting their taxes done.  The good news is that waiting a bit later to do your taxes gives you some extra time to open and fund your individual retirement account for 2011 tax year, whether it’s a traditional or Roth.

What is the difference between a Roth IRA and a Traditional IRA?

If you’ve never opened an IRA before, you should review some of the pros and cons of a traditional or a Roth account. The main difference between the two IRAs has to do with when you’ll be taxed:

  • Roth IRA – contributions are made with after-tax assets, all transactions within the IRA have no tax impact, and withdrawals are usually tax-free.
  • Traditional IRA – contributions are often tax-deductible (often simplified as “money is deposited before tax” or “contributions are made with pre-tax assets”), all transactions and earnings within the IRA have no tax impact, and withdrawals at retirement are taxed as income.

Sources: IRS Publication 590 and Wikipedia

How Should I Direct My Retirement Contributions for 2012?

It’s not too early to work on your 2012 contributions. You may even want to use your tax refund to put a chunk down in your IRA. Some financial gurus, like Dave Ramsey, encourage the following process to maximize your retirement contributions.

It’s a great place to start if you’re looking at where to allocate your money.

Photo Credit: sciondriver

 

 

About Elle Martinez

Elle Martinez helps families at Couple Money achieve financial freedom by sharing tips for reducing debt, increase income, and building net worth. Learn how to live on one income and have fun with the second..

3 comments

  1. Thanks for the information – do you know how I can figure out how much I can still legally contribute? With the gains as losses from when I bought, I’m not sure.

  2. Younger people with a Roth 401k option might want to explore that route. There are calculators on many mutual fund websites to decide if a traditional 401k contribution or Roth 401k contribution is better for your needs.

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