It’s already 2015, but you planned to start an IRA last year, knowing your contribution would be tax deductible for 2014. Well, it’s not too late. There is still time to open an IRA that’s tax deductible for 2014, which means you can start contributing today. Here are three important things Community Bank thinks you should know about IRAs.
1. What is an IRA?
An IRA is an account set up at a financial institution that allows you to save for retirement on a tax-deferred basis. An IRA can help you reach your retirement goals, particularly if you’re not already contributing to a 401(k). Even if you already have a 401(k) though, it’s important to diversify so you have multiple sources of savings ready for retirement. Many financial experts estimate that you may need up to 85% of your pre-retirement income in order to retire comfortably. An employer-sponsored savings plan, such as a 401(k), might not be enough to accumulate the savings you need.
2. How much can I contribute to an IRA?
The IRS allows you to deposit up to $5,500 annually if you’re under the age of 50 and $6,500 annually if you’re over 50. Your annual contribution cannot exceed your taxable compensation for the year, or combined compensation if you file jointly. These maximums will stay in place for the immediate future, but may change in coming years. Those who are 70½ and older cannot make regular contributions to a traditional IRA, but you can still make rollover contributions to an IRA regardless of your age. Consider the following examples:
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Denise is an unmarried college student working part-time, who earned $4,000 in 2014. Denise can contribute $4,000 to her IRA in 2014.
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John is 42, earned $50,000 in 2014, and has a traditional IRA. He can contribute a total of $5,500 for 2014.
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Joanna is 52, married and had no taxable compensation in 2014. She and her husband reported taxable compensation of $60,000 on their 2014 joint return. Joanna may contribute $6,500 to her IRA for 2014 ($5,500 plus an additional $1,000 contribution for age 50 and over).
3. Is there a deadline for opening an IRA?
IRS rules dictate that IRAs must be opened and funded by the April 15 tax-filing deadline in order to receive a tax deduction for your 2014 filing. This is good news because it means there’s still time to make a 2014 contribution, plus another contribution this year for 2015.
IRAs are a great way to secure your financial future and prepare for retirement. Remember, it’s never too late to start an IRA. Those who are 50 and over can contribute an extra $1,000 annually. IRAs are also FDIC insured up to $250,000, which means they are safe and secure if opened at a FDIC insured institution like Community Bank. Please call Community Bank of Oak Park River Forest at 708-660-1000 if you would like to learn more about opening an IRA.