Have You Contributed To Your IRA Yet

 

By  Roxanne Fleszar

 

Yes, April 15th is right around the corner and it is likely that a majority of you have not files your 2014 tax return yet. So, have you taken advantage of one of the easiest ways to receive a tax reduction and save for your retirement yet?

 

 

You may be one of the fortunate Americans who have saved enough for retirement. Or you may not; new research from the Center for American Progress shows that more than 50% of our citizens do not have enough saved for retirement.

 

 

The report reviewed how much Americans are saving for retirement and used complex modeling to estimate the percentage of them would be able to maintain their standard of living in retirement.

 

 

 

Comprehensive surveys by the Federal Reserve show that nearly one-third of people in the US have no retirement savings and do not participate in a pension plan. Of those closest to retirement, aged 55 to 64 years, 19 percent had no retirement savings to supplement their Social Security benefits.

 

 

Why are retirement savings lacking? While there are many reasons, the primary one is that as of 2014, only 65 per cent of private sector employees worked for a firm that sponsored a retirement plan and only 48 percent of chose to participate in the plan.

 

 

Some scary numbers come to the forefront in this survey in that of all households of individuals aged 55 to 64 years, the average retirement account balance in 2013 was $14,500. Once they excluded all households with no savings the average balance was $104,000. This balance would only provide $5,000 a year for a person choosing to purchase a guaranteed annuity from a life insurance company for the remainder of their life!

 

 

 

Financial planners like me are well aware that Social Security was never designed to be the sole source of persons’ retirement savings. For simplicity, think of a three legged stool. To maintain one’s standard of living in retirement, individuals should be able to draw from Social Security but also have funds invested personally as well as in a retirement plan. (If you are a government employee, at full retirement age you will be drawing from a pension but should also supplement that with personal savings).

 

 

So back to your 2014 tax return. You may contribute to one of three types of IRA’s for 2014 if you have not already filed your return or are going on extension. You may establish an account if you do not have one at a bank, credit union, or brokerage firm.

 

 

Traditional IRA’s are for individuals that want to receive a tax deduction as well as tax-deferred growth on the assets until they withdraw the funds. Upon withdrawal the funds are taxed as ordinary income so individuals typically take only what they need and allow the rest to grow on a tax-deferred basis. (Note that at age 70.5 years contributors must start annual withdrawals called required minimum distributions. As the funds were tax-deductible, Uncle Sam is finally receiving some income from the assets).

 

 

With a Traditional IRA, you may contribute up to $5,500 if you are under age 50 or up to $6,500 if you are over age 50. Note, the tax deduction may be phased out if you exceed various income limits so be sure to carefully read or ask your financial advisor/institution about those.

 

 

SEP IRA’s are available for self-employed or small business owners. The funds are tax deductible and grow on a tax deferred basis like a traditional IRA but the contribution limits are much higher. An individual may contribute the smaller of $52,000 or 25 per cent of salary. Individuals eligible for a SEP IRA can really boost their retirement savings accounts quickly because of the higher contribution limits.

 

 

 

Roth IRA’s contribution limits are the same as those of traditional IRA’s. A Roth differs in several ways; contributions are not tax-deductible but the earnings grow tax free. There are no taxes on withdrawals on contributions held for 5 years or more. Again there are income limits to be aware of so before establishing an account, review those carefully.

 

 

So, is it time you considered beefing up your retirement resources? If so, get going!

Roxanne E. Fleszar, CFP, ChFC

President

Financial Resources Management Corp.

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