A common question you hear in the retirement world is “how can I retire comfortably”, and we are constantly reminded how important it is to save for the future. IRAs (Individual Retirement Accounts) and Solo 401(k)s are some of the best tools created for those who choose to save money and create wealth for retirement through investing. Vehicles like this provide tax advantages for retirement savings, deferring taxes until distribution age or potentially making it to where an individual never has to pay taxes on growth at all!
But what do you do with your IRA when a global epidemic hits and all of your plans shift? More recently, THIS has become the most common question. At first glance, the thought of maximizing your IRA and the contribution limits of IRAs can seem intimidating. Setting aside hefty sums of money for the future may not seem all too appealing when you really need it now! The truth is, contributing to a retirement plan just may not be an option for each and every person right now and that is okay! For those who can take advantage of building their IRA during this time, understanding many different ways and options to maximize it to the highest potential is important.
As a savvy saver and intelligent investor, you know that there will always be benefit to maximizing your IRA contributions every year. In order to better your future, we have broken down how you can max out your contribution limits! In reality, maximizing your contributions now builds a more stable financial future for you and your family, especially when considering compound growth when each new investment makes a profit. The good news is, if you have not made or contributed all of your 2019 contribution limits, you still have ONE MORE DAY to do so.
Normally, Tax Filing deadline falls on April 15th every year, cutting off the ability to make any more contributions for that specific tax year. With the recent CARES Act the normal April 15th deadline has been extended, allowing individuals to make IRA contributions until July 15th 2020 for the 2019 tax year. Utilize the extended deadline! With that extra time, those who may not have been able to contribute or may have forgotten have one more day to contribute until the new deadline. That change could potentially have allowed some people more time to find a new job if they had been laid off, in turn giving them the ability to contribute to their IRA!
It is extremely important to understand how much you are allowed to contribute per year, though! In theory, it would be great to dump thousands of dollars into a tax sheltered retirement vehicle, but Uncle Sam has put some limits on how much we can contribute to our IRAs per year, and if those rules are broken, there could be excess contribution penalties for doing this transaction! Choosing a good custodian that will help you monitor this just like Quest, is very important, too. The table below outlines the contribution limits for 2019 and 2020 for the accounts that Quest offers.
Some of the things you may want to ask yourself are: “Have I maxed out my 2019 contribution?” and “With this extra days I have, could I contribute more and how much?” Understanding that COVID unexpected expenses are occurring for many people right now, considering how that amount can be divided as opposed to a lump sum deposit could be worth thinking about, as well.
Did you know you could have multiple IRA accounts and max them ALL out? Yes, you read that right! Quest and other custodians usually offer many different types of accounts, as well. Just as we mentioned above, just here at Quest we have 7 different types accounts and almost all of these accounts have varying contribution limits. Granted, there are certain limitations that still apply when maxing out different types of accounts. For example, you wouldn’t be allowed to open 20 Roth IRA accounts and contribute the maximum to every account; this would need to be spread across the accounts up to the limit. But as you can see, there are categories that show Personal Plans, Employer Plans, and Specialty Plans. Each of these categories, if you qualify for them, contain plans that can all get a contribution!
You may be wondering what the difference is between Personal Vs Special Vs Employer. When we talk about personal plans, we are referring to retirement plans that one can open as an individual with earned income. Employer 401(k)s often roll over directly into a personal plan like a Traditional or Roth IRA, making them very common retirement vehicles. Another plan category many custodians offer are Employer Plans. Some individuals work for themselves! For the certain ones who are self-employed and pay themselves self-employment income, they can qualify for specific accounts that allow for much higher contribution limits. Lastly, companies may offer Specialty Plans. At Quest, our specialty plans include the Health Savings Account and Coverdell Education Savings Account. These two plans have been deemed “special” due to the fact that individuals can take tax free distributions from these accounts for qualifying expenses! As the names may sound, the Health Savings Account allows for qualified health expenses, and the Coverdell ESA allows for education expenses. If you, your family, or your child qualify for one of these accounts, you may have the ability to open the accounts to max it out and then use it to partner it with your other accounts! Having a clear understanding of the many different types of accounts offered and which ones you can qualify for to contribute to will help you maximize your retirement vehicles to the very top!
The last thing you may want to consider is a Roth Conversion. A Roth Conversion is when a movement of assets from a Traditional, SEP, or SIMPLE IRA occurs and goes into a Roth IRA. This taxable event makes it to where anything else grown in the account thereon becomes tax free, as long as it is left in there for 5 years and the individual doesn’t take it out before retirement age. Is this a good time to do a Roth conversion? For more information about Roth Conversions, we recommend speaking with an educated IRA Specialist either at Quest or another reputable financial institution.
Lastly, you may consider if you have other accounts you can move over from other custodians? Diversifying your investment portfolio right now is a strong consideration many people are having. Public assets may not have as much control as private assets, and those who have had their accounts at more traditional custodians, are finding that Self-Directed IRA custodians can offer the ability for the individual to truly take control and invest in what they are knowledgeable and comfortable with. IRAs can always be transferred between other IRAs, so doing your research to see which custodian meets your specific needs and transferring an existing account to a different or new account may help you maximize your IRAs, too.
Times can be uncertain, but your retirement does not have to fall by the wayside. You still have time to maximize your future, and make the most of the contribution limits. If you don’t have an IRA or made a contribution for 2019, know that it’s not too late for you to get started either! Feel free to call Quest and we can provide more education for you, and see how we can help you get started maximizing your accounts to their full potential! Call us at 855-FUN-IRAs. To learn more about how to get started investing with a self-directed IRA, schedule a 1-on-1 consultation with an IRA Specialist by clicking HERE.
Check out this video to learn more about 2019 and 2020 IRA contributions, and how to contribute to your Quest account.