Calendar year 2005 is gone, and you still have until April 15th of this year to trim your 2005 federal income tax bill and increase your tax-favored retirement assets. Here's the strategy, and it's a simple one:
- Make your 2005 IRA contribution now. If you haven't already paid into your IRA for last year, you still have time up to April 15th, 2006. If you have earned income, you can make a lump-sum payment of up to $3,000 for you and, if eligible, another $3,000 for your spouse.
- Make your 2006 IRA contribution right now, too. That's another $8,000 of retirement nest feathers if you are married. Then you can forget about making additional IRA contributions until the next year. (If you are cash shy, you can space this $8,000 out over the next 12 months, if necessary. That's around $665 a month. Still, if you have the money, why not do it now?)
The result could be tax savings for each year if you are eligible and elect to contribute your money to a traditional IRA.
Or you could make your contribution to a Roth IRA, if you are eligible. If you go this route, your contributions are not deductible. However, qualified distributions are received federally tax-free, which may save you taxes in the future.
(There are a number of factors to consider when selecting the right IRA option. The question of whether to use a traditional or Roth IRA is one you should discuss with your New York Life agent.)
Most of all, the result can also be high-powered asset building to help provide you and your spouse with a financially comfortable retirement. For example, take this two-year, $16,000 (total for you and your spouse) contribution. If that money is put to work and earns an average return of just 5% a year, it will grow to $40,431 in 20 years. Give it 30 years to compound at the same rate and it will grow to more than $65,858.
That's just for this single, two-year contribution. Pay $8,000 each year for the next 20 years (still at a modest 5% average rate of return), and the total will blossom to $305,776. Add another ten years of annual contributions of $8,000 per couple, and the grand total will exceed $604,787. This can generate an ongoing income to help provide a secure retirement.
The Bottom Line
Making maximum IRA contributions for 2005 and 2006 as soon as possible may help reduce your income taxes today or in the future. Plus, the contributions you make now will help you accumulate assets for your long–term financial security.
Important: Talk to your New York Life agent and your tax advisor before making any moves. They can tell you about potential consequences of the decisions you make.
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|Act Before April 15th to Trim Taxes and Build Assets|