2015 IRA Contribution Planning

Start Thinking About 2015 IRA Contribution Planning

It’s April 20^th and I’m already thinking about IRA contribution for the coming year, a few days after the deadline for 2014.

“Why?” you might well ask. Very simple – it’s important to think about IRA contribution.

If you start IRA contribution planning now, socking away some money into your IRA contribution account won’t be as painful as if you wait until the last minute. In this case, that last minute is April 15, 2016 for the tax benefits of 2015. You can squirrel away a little bit each month rather than hoping to have a significant amount of cash handy at the 2015 IRA contribution deadline. You might even make a plan for your monthly investments, and we all know that we’re more likely to succeed if we have a plan to follow.

How much can you invest into an IRA contribution? The IRA contribution limits haven’t changed for the coming year. If you’re under 50, you can contribute up to $5,500. Fifty or over? Then the limit is $6,500.

(How about this for an IRA contribution plan? Take those limits and divide by 12, then invest the answer each month. By next April 15^th you’ll have invested the maximum IRA contribution. I’ll even do the math for you! At $5,500, you’d need to invest $458.33 each month. At $6,500 the monthly amount is $541.67.)

Why the urgency? Well, if you’re able to invest in a traditional IRA, (usually because you’re not covered by a retirement plan at work) you’ll get a tax deduction for your IRA contribution. That’s almost always a good thing! If you are covered by an employer sponsored plan, you can still make non-deductible contributions to a Roth IRA. In either case, the more and sooner you invest, the faster your investment portfolio can begin growing and the larger it can become – all thanks to the miracle of compounding.

Let’s consider: if you invest the maximum 2015 amount of $458.35 each month ($541.67 if you’re age 50 or more), those monthly IRA contributions could grow to a surprising amount! Look at the table below:

			Years Invested
Amount Invested	Annual Rate of Return	10	20	30	40
$458.35	8%	$82,098	$260,331	$645,123	$1,475,859
$541.67	8%	$97,026	$307,668	$762,428	$1,744,220

We used a hypothetical compound annual return rate of 8% per year and also assumed that the money is invested at the beginning of each month and remains invested throughout each full multi-year period. If your investments earn more or less than 8%, the amount at the end of the investment period will, of course, be correspondingly more or less. No matter what rate of return the markets actually return over the various time periods, a failure to invest will produce an ending portfolio worth exactly zero.

There’s more to planning a financial future than just working hard and getting ahead. If you haven’t opened an IRA yet, do it soon. Then, get your plan worked out and get going. Your financial future will be brighter if you do!

Post from: Insights