How to Fund an IRA

By Pam O’Brien · January 18, 2024 · 6 minute read

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How to Fund an IRA

Saving for retirement is important. But it can be challenging to put away money for the future when you have a lot of right-now financial commitments to take care of. Almost half of all American households report they have no retirement account savings, according to the Federal Reserve’s latest Survey of Consumer Finances.

However, it’s better to start with a small amount of savings than not to save at all. And the sooner you begin, the more time your savings will have to grow. One way to help kickstart retirement savings is with an IRA, a type of account designed specifically to help you save for retirement.

If you’re wondering how to fund an IRA, read on to find out about some potential methods that could help you contribute to an IRA.

Before You Start, Know Your Contribution Limits

First things first, it’s important to be aware that IRAs have contribution limits set by the IRS, and those limits often change annually. In 2024, you can contribute up to $7,000 in an IRA, or up to $8,000 if you’re 50 or older.

IRAs also come with potential tax benefits, which vary depending on the type of IRA you have. With a traditional IRA, contributions may be tax-deductible. For instance, if you and your spouse don’t have access to an employer-sponsored retirement plan, you can deduct the full amount contributed to a traditional IRA on your tax return in the year you make the contribution, regardless of your income.

And, even if you or your spouse is covered by an employer-sponsored retirement plan, the IRS still allows you to deduct a portion of your contribution.

With a Roth IRA, the contributions are made with after-tax money, which means they are not tax deductible. You can only fund a Roth IRA in years when your income falls below a certain limit.

In 2024, if you’re married and filing jointly, you can contribute the full amount to your Roth IRA if your modified adjusted gross income (MAGI) is less than $230,000. If your MAGI is between $230,000 and $240,000, you can contribute a reduced amount, and your income is over $240,000, you can’t contribute to a Roth. Those who are single can contribute the full amount if their MAGI is below $146,000, or a reduced amount if it’s between $146,000 and $161,000. They cannot contribute at all if their MAGI is more than $161,000.

💡 Quick Tip: Did you know that opening a brokerage account typically doesn’t come with any setup costs? Often, the only requirement to open a brokerage account — aside from providing personal details — is making an initial deposit.

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6 Ways You Can Fund an IRA

After you decide which type of IRA is right for you, your next step is to contribute to it. Here are some suggestions for how to fund an IRA.

1. Use Your Tax Refund

If you expect to get a tax refund, consider using that money to open an IRA, or to contribute to your IRA if you already have one. If you don’t want to contribute the entire refund, you could contribute a portion of it. Minimum amounts to open an IRA vary by institution, so do a bit of research to find the right account for the amount of money you currently have.

2. Take Advantage of Tax Deductions

You may be able to get a bigger tax refund next year by deducting your contributions to a traditional IRA this year, as long as you are eligible for the deduction. You can then use the bigger refund to fund your IRA next year.

3. Contribute “New” Money

If you get a raise or a bonus at work, or if a relative gives you money for your birthday, consider contributing all or part of it to your IRA. Just be sure to stay below the annual IRA contribution limit throughout the course of the year.

4. Make Small Monthly Contributions

You can contribute to your IRA throughout the year so if you open an account with, say, $100 (as mentioned earlier, how much you need to open an IRA depends on the institution), you can then make a monthly contribution to the account. Even if you put only $50 a month into the account, by the end of the year you would have $600. Increase that monthly contribution to $100, and you’re up to $1,200.

5. Set Up Automatic Contributions

Automating your contributions will allow you to save for retirement without thinking about it. You can even set up your automatic contribution so that it comes out of your bank account on payday. That can make it easier to put away funds for retirement. After all, you won’t be tempted to spend money that you don’t actually see in your bank account.

6. Roll Over Your 401(k) When You Leave a Job

When you change jobs, you generally have three options for your old 401(k). You could leave it with your old employer, roll it over to your new 401(k) if that’s available to you, or rollover your 401(k) into an IRA account.

You may want to review the fees associated with your 401(k) in order to understand what you are paying by leaving it with your old plan or rolling it over into your new 401(k).

Possible benefits of rolling your old 401(k) over to an IRA may be things like lower fees, expanding your choice of investment options, or a managed solution that invests your money for you based on your goals and risk tolerance.

The Takeaway

If you haven’t started saving for retirement, or if you haven’t been saving enough, it’s not too late to begin. No matter what stage of your life you’re in, you can create a plan to help you achieve your retirement goals, which could include contributing to an IRA.

You can fund an IRA by using your tax refund, making contributions automatic, or contributing a bonus, raise, or monetary gift you receive. No matter how you choose to contribute, or how much you contribute, the important thing is to get started with retirement saving to help make your future more secure.

Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

FAQ

How can I put money into my IRA?

There are many different ways to fund an IRA. For instance, if you get a tax refund, you could contribute that money to your IRA. You can also contribute funds from a bonus or raise you might get at work, or from birthday or holiday money from a relative. In addition, you can set up automatic contributions so that a certain amount of money goes directly from your bank account to your IRA on payday. That way, you won’t be tempted to spend it.

Can I contribute to an IRA on my own?

Yes. As long as you have earned income, you can open and fund a traditional or Roth IRA. This is true even if you have a 401(k) at work. There is a limit to the amount you can contribute to an IRA, however, which is $7,000 (or $8,000 if you are 50 or older) in 2024.

What is the best way to fund a traditional IRA?

One of the best ways to fund a traditional IRA is to use your tax refund. This is “found” money, rather than money you’re taking out of your bank account, so if you contribute it to your IRA you likely won’t even miss it. Also,consider this: By making a contribution to your traditional IRA, you may be able to deduct it from your taxes, which means you might get an even bigger refund next time around. And then you can use that bigger refund to fund your IRA next year.


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Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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