We all know we should be saving for retirement. (Bill Gates, if you’re reading this, feel free to disregard.) But, when allocating a monthly paycheck to our myriad of mandatory expenses (Insurance! A Mortgage! Utilities! Bills!), building a "Nest Egg" can often fall by the wayside. Particularly when the regulations for IRA (Individual Retirement Account) contributions seem complicated and ever-changing, it can leave us feeling defeated before we even start. Luckily, the members of our Wealth Management & Trust team are experts at precisely this type of information, and are here to break it down for the rest of us. If you’re looking to maximize (or begin!) your IRA contributions in 2020, pull up a chair and keep reading!
IRA Contributions in 2020: What You Need to Know
Choices……. Student loan payments. Car payments. Housing payments. How does a person even think about saving for retirement!?
- For 2020, the maximum contribution to a traditional IRA or a Roth IRA remains at $6,000 - or, $500 per month. If you are age 50 or older, your maximum contribution bumps up to $7,000 ($583.33 per month). It’s important to note that IRA contributions are based upon your earned income; so if you did not have any earned income in a given year, you would not be eligible to make an IRA contribution for that year. However, (as it goes with most rules!), there’s always an exception. In this case, the exception is for married couples, known as the spousal IRA.
- Although anyone can contribute to a Traditional IRA, not everyone may be able to take advantage of the tax deduction for their traditional IRA contributions. If you or your spouse have access to an employer-sponsored retirement plan at work, your traditional IRA deduction may be subject to certain income limitations. If you or your spouse don’t have access to an employer’s retirement plan, there is no income limitation for you.
- Roth IRA contributions, on the other hand, are income-restricted for everyone, including those who don’t participate in an employer’s retirement plan. Roth IRA’s allow you to put after-tax money aside and then, (after meeting certain requirements), provide the option to withdraw the funds, along with any earnings, tax-free.
- With the passage of the SECURE (Setting Every Community Up for Retirement Enhancement) Act of 2019, there are a number of changes that may impact your personal situation related to having an IRA. Some of the changes include increasing the required minimum distribution age to 72; generally requiring assets to be distributed by the end of the 10th calendar year following the year of the account owner’s death, and providing penalty-free withdrawals for individuals in case of birth or adoption. Always check with your tax-advisor or other trusted financial professional when determining how these rules impact your particular situation.
Many pre-retirees would find saving $500 per month a challenge. As Dave Ramsey states in his Financial Peace University course, start with baby steps – maybe you start with saving $50 per month. Each year try to increase this amount by $25 or $50 per month so you can continue to make progress in meeting your retirement goal.
Please contact us regarding your IRA questions – we look forward to serving you and wish you a successful 2020!
Gary L. Popkes, CFP®
Senior Vice President
Wealth Management & Trust Services