One Last Minute Tax Tip You Should NOT Ignore

Here’s one tax tip that will never lead you wrong:

Fund your Roth IRA.

If you are eligible to make a Roth IRA contribution for 2017 (yes, there is still time!), do NOT fail to do so.

Roth IRAs have been around since 1997, and they remain one of the best  deals out there.

Whatever you put into a Roth grows forever tax-free, assuming you follow a few simple rules.

Just think – funding a Roth is like moving money from your taxable pocket into your forever tax-free pocket. Nothing could be easier, or smarter!

So here’s 5 key facts to know about a Roth.

1. Did you work last year? Then you may be able to fund a Roth IRA for 2017. You can contribute up to $5,500 per year, or up to 100% of your earned income, if less. That number jumps to $6,500 per year if you turned age 50 by the end of 2017.

2. Want to cut taxes down to size? The Roth is not a deductible contribution but all money put into the Roth grows forever free of tax (yes, there is some fine print, but you get the picture).

3. Ready to act fast? You can make contributions for 2017 up to the tax deadline of Tuesday, April 17. Don’t miss that deadline! Not funding your Roth IRA when you’re eligible to do so should be a criminal offense, in our opinion (just kidding!).

4. Want to help your kids? One of the best gifts you can give your kids is money to kickstart their Roth IRAs.

See our article on “Your Teenager Got A Job? Here’s How To Start Them On The Road To Riches.”

The numbers are astonishing. If your child contributes $5,500 every year to a Roth starting at age 22, then bumps up annual contributions to $6,500 at age 50, when she becomes eligible for catch-up contributions, she’ll accumulate $1.5 million in tax-free money by age 65 (assuming a return of 7% per year). Not shabby!

5. In the income sweet spot? You lose your ability to fund a Roth IRA if you make too much money (sorry!). That’s why it’s extra important to start funding a Roth when you’re younger and are lower on the salary totem pole. As you grow older and make more money, you may “graduate” and lose the opportunity to contribute to this amazing account. (Then you’ll look back and kick yourself for missing out!)

Single filers start losing the ability to fund the Roth as modified Adjusted Gross Income (AGI) rises above $118,000 for 2017, while married couples start phasing out at $186,000. (The income numbers are a little higher for 2018 contributions.) Don’t know how to calculate your modified AGI? Your tax preparer or TurboTax should be able to tell you if you qualify for a Roth.

Want more info? See our article “Traditional Or Roth IRA: Which Is Best?”

 

About Mari Adam

Mari Adam, Certified Financial Planner™ and President of Adam Financial Associates Inc, has been helping individuals and families chart their financial futures for over twenty-five years. Have a question about your financial situation? Ask Mari!

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