February 21, 2025
3 Essential Tips for Navigating IRA Contribution Season with Confidence
As IRA contribution season approaches, it’s time to focus on building your retirement savings while maximizing the tax advantages available through Individual Retirement Accounts (IRAs). Whether you're a seasoned investor or just starting, here are three essential tips to make the most of IRAs before the 2024 contribution deadline of April 15, 2025.
- Know Your Contribution Limits
One of the most important aspects of managing your IRA is understanding the annual contribution limits. For 2024, the contribution limit is $7,000 for individuals under 50 and $8,000 for those aged 50 or older (thanks to the "catch-up" contribution). Roth IRAs also maintain earning restrictions for eligible contributions. In 2024, individuals earning more than $146,000 are allowed only partial contribution and those earning more than $161,000 are prohibited from contribution.
Ensure you don’t exceed these limits, as doing so could result in penalties. On the other hand, if you haven't contributed the maximum amount for 2024, you can still make contributions up until the tax filing deadline (April 15, 2025). Maximizing contributions allows you to take full advantage of tax-deferred growth in a traditional IRA or tax-free withdrawals in a Roth IRA during retirement. If you’ve already maxed out your 2024 contributions, start making your 2025 contributions.
- Decide Between a Traditional and Roth IRA
Choosing the right type of IRA is critical for aligning your retirement savings with your current financial situation and future goals.
Traditional IRA: Contributions may be tax-deductible, reducing your taxable income for the year. However, withdrawals in retirement are taxed as ordinary income.
Roth IRA: Contributions are made with after-tax dollars, but qualified withdrawals in retirement are entirely tax-free.
Consider your current tax bracket and anticipated tax bracket in retirement. If you expect to be in a higher tax bracket later, a Roth IRA may offer greater benefits. Alternatively, if you're looking to reduce your taxable income now, a traditional IRA might be the better choice.
- Review Your Investments and Diversify
This is the perfect time to evaluate your investment strategy. An IRA isn’t just a savings account; it’s an investment vehicle. Review your portfolio to ensure it aligns with your risk tolerance, time horizon, and retirement goals.
Take advantage of your IRA’s tax benefits by investing in assets that may grow substantially over time, like stocks, since their gains won't be taxed until withdrawal (or ever, in the case of Roth IRAs).
If your portfolio is heavily weighted in one asset class, consider diversifying to reduce risk. For instance, balancing stocks, bonds, and other assets can protect your savings from market volatility while maintaining growth potential. For any investment accounts, consider speaking to a certified financial advisor for guidance.
If you’re nearing retirement and looking for safety for your retirement savings, Cape Cod 5 offers IRA accounts, such as the 4-Month IRA CD, that include options for full FDIC insurance on your deposits above the standard limit so that you can feel secure with your funds.
Final Thoughts
IRA contribution season is an excellent opportunity to strengthen your retirement plan and take advantage of valuable tax benefits. By knowing your contribution limits, choosing the right IRA type, and ensuring your investments are diversified, you can set yourself up for long-term success. Take action before the deadline and consult a financial advisor if needed to make the most of your retirement savings.
These facts and opinions are provided by the Cape Cod 5 Retirement Services. The information presented has been compiled from sources believed to be reliable and accurate, but we do not warrant its accuracy or completeness and will not be liable for any loss or damage caused by reliance thereon.
