With inflation on the rise, many people are reducing their retirement contributions and spending that money on household expenses. However, neglecting your IRA (individual retirement account) contributions can hurt you in the future by lowering your retirement funds. Discover how to make the most of your IRA investment even when using that money elsewhere is tempting.
Understand the IRA Types
There’s more than one type of IRA, and each type has different contribution limits and withdrawal regulations. If you’re self-employed, you may want to open a SEP (Simplified Employee Pension) IRA, which has a contribution limit of the tens of thousands rather than the usual six thousand. A Roth IRA is yet another type of account that doesn’t penalize you for withdrawing before retirement age.
Max Out Your Contribution
This may sound like common sense, but you’d be surprised by how many people forego this important step. Household expenses are one thing, but you should avoid skipping contributions in favor of things such as buying a new car, renovating your house, or going on expensive vacations.
Transfer Other Retirement Funds
Many people enjoy the employer contributions that come with other kinds of retirement accounts, but you may want more control over your investments. A self-directed IRA rollover allows you to move money from your other retirement accounts to an IRA so that you can manage the funds directly.
Consolidate Accounts
Even though one can only contribute a total of six thousand dollars each year, some people open multiple accounts to make the most of their IRA investments. The danger of doing this is that you’ll end up accruing multiple custodian fees, which detracts from your overall amount.
Don’t Forget To Catch Up
Once you hit 50 years old, you can start making what are called “catch-up contributions” to your IRA. Right now, this rule allows you to increase your annual contribution to seven thousand dollars. If you’re behind on your retirement savings or you want to save as much money as possible, make sure to take advantage of this policy!
Set Up a Nonworking Spouse Account
Just because your spouse doesn’t work doesn’t mean they can’t have an IRA. As long as you file your taxes together, you can set up a spouse account and increase your household’s total annual contributions by several thousand dollars.
It’s never too early to set yourself up for a comfortable retirement! Don’t miss these important steps to getting ahead on your IRA investment.
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