How You Can Save $11,500 in Your IRA Before April 15, 2019
There are a lot of fun things to spend money on. Retirement does not always feel like one of them. Setting money aside for retirement is hard to do, but it’s truly a great gift that you can give yourself.
Your retirement has the potential to be one of the greatest times of your life—imagine taking your family on a European vacation, eating fantastic food, and reading all the books you never had time to read. It’s possible, but it all depends on how much money you save and invest.
The average person isn’t saving enough to live out their golden years in style. One study, by Vanguard , shows that the average (median) person has only $26,000 in retirement savings.
If you haven’t made an IRA contribution for 2018 and are looking to ramp up your retirement savings rate, you’re in luck: You can contribute up to $11,500 to your IRA by April 15, 2019 .
What’s the trick? You’re allowed to make a contribution to your IRA for the previous year up until the tax deadline, along with your 2019 contribution. Below, we’ll explain the basics on how to make your Traditional or Roth IRA prior year contribution.
How Can I Add to My Roth IRA By April?
Say that you know you want to use a Roth IRA, but you have yet to make a 2018 contribution. Maybe you’re unsure of whether you can get to it by the end of the year. It’s okay—there’s still time.
In fact, the deadline for a 2018 Roth IRA contribution is not December 31 as may seem logical; the IRS allows you to make a contribution to your Roth IRA all the way up to the tax deadline in the following year.
The IRS puts a cap on how much you can put into a Roth IRA each year; the limit for Roth IRA contributions is $5,500 in 2018 . Therefore, a person can contribute $5,500 to their 2018 Roth IRA into the spring months of 2019.
Then, in addition to their Roth IRA prior year contribution, they are also able to make a contribution for 2019. More good news: The IRS has increased the limit for 2019 to $6,000 .
Between the $5,500 contribution for 2018 and the $6,000 contribution for 2019, it is possible to add a grand total of $11,500 to the Roth IRA by April 15, 2019.
If you’re a savvy saver and plan to do this, check with your bank and/or accountant to determine the best way to correctly label the contributions in the system. Depending on the bank, you may be able to “code” the contributions yourself, or you may need to contact someone who can label them on the back end.
More importantly, make sure that your tax advisor knows that you’ll be doing a contribution to your Roth IRA for both the previous year and the current year.
It’s totally fine and common, but you’ll want to be sure that it is being reported to the IRS correctly. If you use tax reporting software, it should be easy to indicate that you sent money to your Roth IRA for both the previous and the current tax years.
IRA Tax Rules
Even though we used a Roth IRA in the previous example, this rule applies to both a Roth IRA and a Traditional IRA. Some people may decide to that they would prefer to use a Traditional IRA over a Roth IRA; others may want to use both.
The main difference between a Traditional IRA and a Roth IRA is when you pay income taxes. With a Roth IRA, contributions are made with money you’ve already paid income taxes on—it can come straight from your paycheck. But, money that you take out, to use in retirement, won’t be taxed.
With a Traditional IRA, contributions are done pre-tax. If you are paying with money from your paycheck, and income taxes have already been taken out, and you will be able to deduct this amount from your taxes. The trade-off is that then, you will need to pay taxes on the money you take out, in retirement.
You are allowed to contribute to both a Traditional IRA and a Roth IRA in the same year, providing even more opportunity to save for retirement. Although, there are limits on who can use both types of IRAs.
With a Traditional IRA, you cannot deduct a contribution if you already covered by a 401(k) or any other workplace retirement plan and earn more than $74,000 (with phase-out starting at $64,000) in 2019.
Roth IRAs also have income limits ; in 2019, you cannot use a Roth IRA if you earn more than $137,000 filing their taxes as a single person, though a phase-out begins at $122,000. Filing jointly, a person can’t use a Roth IRA if they make more than $203,000, and the phase-out begins at $193,000.
If you are eligible to use both a Roth IRA and a Traditional IRA, you could hypothetically contribute both $11,500 to your Roth IRA and $11,500 to your Traditional IRA, bringing your grand total to $23,000 in contributions during the spring of 2019.
That’s a pretty impressive amount to put towards retirement in one year, let alone in one season. But, the IRS allows for it, so it’s an option for super-savers.
How To Save More Money In Your IRA
If saving $11,500 in your IRA by April sounds like a tall task, not to fret. Any amount you can commit to your retirement is great, and you’ll be so happy you tried. Here are some ideas for saving more money and getting as close to the contribution maximum as possible:
Save any Holiday Gift Money
If you get cash for the holidays, consider putting most of it towards your retirement. Try the 90/10 rule, where 90% of cash gifts go towards financial goals, and 10% goes toward buying myself something fun. Try this even with small amounts, like $20—small amounts can add up.
Save Bonus Money
Similar to gift money, use all (or most) annual or end-of-year bonus money to fatten up your retirement accounts. A bonus is just that; money that may not have been planned for or relied on, so save it and try to resist the urge to spending it on things you won’t remember in a year from now.
Use the New Year to Financially Reset
After the rush of the holidays, the new year can be a great time to re-group. First, take a look at your spending over the last year, and identify areas that you can cut back. Then, build yourself a budget for the new year.
Commit to tracking your spending throughout the first few months of the year to make sure that you’re sticking to your budget and getting a feel for how much you’re spending in each category.
In the spirit of resolutions, commit to cutting back in one or a few areas. For example, a person might be able to save an extra $500 in a few months by cutting out restaurants and bars. What can you give up that you really won’t miss all that much?
Earn More Money
Easier said than done, of course. For some, the beginning of a new year is a great time to ask for a raise. If you’re not in a position to do so, consider having a conversation with your boss about what you can do to work towards a raise. Set a timeline so that you have something concrete to work towards.
If earning more at your current job isn’t an option, it might be worth looking at other job openings in your field. Some studies show that job-hopping can actually increase a person’s earnings over time.
And if you can’t get paid more for the work you’re currently doing, you could start a side hustle. This might not make sense if you’re already feeling overworked, but those with some extra bandwidth could look into making some extra cash doing a little something on the side.
No matter how you’re able to do it, saving money in a retirement account is an accomplishment, so pat yourself on the back. The act of saving money can be difficult, but it is so important towards your long-term financial health. Next up? Investing the money you’ve worked hard to save within your retirement accounts.
When it comes to investing, beginners can consider a couple different options. First, investors can always invest on their own, using investments such as stocks and bonds or using mutual funds. To do this, an investor would need to have an idea of how to build a portfolio.
Another option is to work with a company that will manage your investments for you, given your goals and risk tolerance. This option may jive better with someone who isn’t interested in the DIY method.
SoFi Invest is an innovative, affordable way to invest and best of all, it comes with free financial advice that can answer questions not just about your portfolio, but about all of your financial goals.
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