An individual retirement account, or IRA, is a powerful tool for retirement savers, but putting the money aside is not always easy. The contribution limits for these accounts keep rising, but that doesn’t help if you have no money to save.
So how do you put more money into your IRA? How can you maximize the tax benefits of these fantastic accounts? Here are some creative strategies to help you put more into your IRA this year.
Change Your Withholding
If you are used to getting a big tax refund, Uncle Sam may be taking too much out of your paycheck. That large refund means that you have been lending money, interest-free, to the government for the past 12 months.
If you are struggling to put more in your IRA, talk to your employer about changing your tax withholding. The money you contribute to a traditional IRA is tax-deductible, so maxing out your contribution could substantially lower your year-end tax bill. Diverting the extra cash in your paycheck to your IRA is a great way to increase your contribution so you can earn a return on your investment.
Set Up An Automatic Bank Transfer
Setting up an automatic transfer from your checking account to your IRA is a great strategy, one that achieves several important goals. For one thing, this automated transfer forces you to live on less than you make, enforcing a fiscal responsibility that will serve you well throughout your life.
The automatic transfer method also makes funding your IRA as painless as possible. Once the transfer request is in place, you will not even have to think about it – it will happen without any additional action on your part.
Take On A Side Hustle
Even if you have a full-time career, maxing out your IRA can be a challenge. If you are having trouble meeting your living expenses and saving for retirement, a side hustle may be the answer. Once you find one, you can direct all the extra cash to your IRA. Then when your IRA is funded, you can redirect your earnings elsewhere, improving your financial situation even further.
Save Your Change
Do you use cash a lot? Put a big change jar by the front door and empty your pockets when you get home. When the jar fills with the change, take it to the bank and dedicate the cash to your annual IRA contribution.
You may not be able to make your total IRA contribution by using your spare change, but it’s an excellent place to start. Over time, you can save more and more, perhaps even maxing out your IRA contribution.
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Use Your Bonus As An IRA Contribution
If you’re in line for a bonus, use the cash as your annual IRA contribution. After all, it’s found money, and you might as well put it to work. You can use the same strategy with any unexpected windfall. Whether it is a lottery winning, an inheritance, or anything else, you can use it to boost your retirement savings.
Use Your Savings Credit
The Savings Credit, or Retirement Savings Contribution Credit, helps low-income earners with a credit of 50% up to the first $2,000 saved. To be eligible, your adjusted gross income in 2021 must be less than $33,000 for single or filing separately, $66,000 if you’re filing jointly, or $49,500 for the head of household.
Open Another IRA
On the off chance you do reach your contribution annual contribution limit with one IRA, open another. For example, if you have a traditional IRA, try opening a ROTH IRA. Check with your banking institution for any limitations or requirements. The bottom line, if you maxed out one, move to the next. Just make sure you understand the benefits of both to make the most out of your money.
The contribution limits for the IRA are quite generous, so much so that many workers will never reach them. If you have been struggling to max out your IRA, the smart strategies listed above could help you make up the difference.
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This article was developed in partnership with Balance Pro.