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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, whether it's a traditional or Roth.
I thought it would be a great time to share an older post with some updated reminders for this tax season.
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
- $169,000 for married filing jointly or qualifying widow(er),
- $116,000 for single, head of household, or married filing separately and you did not live with your spouse at any time during the year, and
- $10,000 for married filing separately and you lived with your spouse at any time during the year.
Opening Your IRA with Online Brokers
If you don’t have an IRA already opened, then here are some places to consider:
I'm using Sharebuilder for my Roth IRA and have been happy with it for the last couple of years. Remember, you can make 2009 contributions all the way up to when you file your taxes or April 15, 2010, whichever comes first. Please talk to your broker to make sure that the money will be deposited before the April 15th deadline.
How Should I Direct My Retirement Contributions for 2010?
It's not too early to work on your 2010 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.
- 401(k) up to the employer’s match
- Roth IRA up to the year contribution limit (right now it’s $5,000 if you’re under 50 years old)
- Rest into 401(k)
It's a great place to start if you're looking at where to allocate your money. My husband and I try to automate our contributions to keep ourselves on track.
I did not fully fund my IRA for 2009, but I was happy to still contribute to it while working on my other financial goals and improving our cash flow. My focus this year will be increasing my 2010 Roth IRA contributions.
How are you going with your taxes? Did you max out your 2009 IRA contributions?
Photo Credit: sciondriver
This article was included in the Carnival of Personal Finance!