News & Advice

There is still time to maximize your IRA before tax day. Kudos if you’ve contributed all year, but don’t worry if you have yet to start. Here are a few tips to get the most from tax-advantaged IRA plans for 2021. (Note: We recommend that you consult with a tax advisor before making changes to your IRA contributions). 

Know your limits. You need to know your contribution limits so you can maximize your benefit. If you have the means, try to contribute as much as the law allows so you get the most benefit.

Generally speaking, if you have an IRA, you can contribute up to $6,000 for 2021. Are you married and filing your taxes jointly? Then you and your spouse can contribute to the plan limits.

When it comes to IRAs, age matters! If you’re 50-years-old or older at the end of the year, you can contribute an additional $1,000 to the $6,000 limit to a deductible or nondeductible IRA.

Beware of your deadlines. It’s OK if you’re just now opening and contributing to an IRA for 2021. You have until April 15, 2022, to open and/or contribute to your IRA for your 2021 tax purposes.

Consider automatic contributions. Pay yourself first. You can make your contributions automatic by having a portion of each paycheck deposited into a separate account or with an automatic transfer from checking to a special saving account every month. 

Make periodic payments. An excellent way to slowly add money throughout the year is to get into the habit of sending frequent small contributions to your brokerage or other institution. Periodic payments can be a lot less painful than coming up with the money all at once.

Shuffle your money for maximal contributions. Did you know that money for IRA contributions doesn’t have to come from your checking account or your monthly budget? Instead, contributions can come from a brokerage or savings account. It’s good practice to keep all of your financial objectives in mind before moving money to a retirement account.

Make the most of surprise money. You know, it’s that money won in a contest, a bonus from work, or a financial gift you weren’t expecting. If you find yourself in that welcomed situation, you can add it to your IRA.

Roth or Traditional? So if you want to maximize your IRA before tax day but don’t have one, you may be wondering which IRA is best for you – a traditional IRA or a Roth IRA. What’s the difference, and what makes the most sense for you?

There are advantages to traditional and Roth IRAs, and timing is everything. One of the most significant differences is when you’ll see the most advantage. A traditional IRA provides potential tax relief today, while a Roth IRA has the potential for a tax benefit when you retire. When you’re trying to decide which kind of IRA to open, consider the short- and long-term tax benefits.

If you’re expecting to be in a lower tax bracket once you retire, taking the deduction now for a traditional IRA may yield a more significant tax benefit. Traditional IRA contributions are deductible because the IRA is funded using pre-tax dollars. So what does that mean for you? Well, you’ll have to pay taxes on the money, but you can deduct it. Importantly, you can deduct your IRA contribution even if you’re not itemizing deductions.

No matter the route you take to maximize your IRA, remember you have until April 15, 2022, to contribute to your existing account or open up an IRA and make a contribution for the 2021 tax year.

Thinking about opening an IRA? INOVA Federal offers IRAs with premium rates and no monthly or annual service charges. Stop in and see us at one of our convenient locations, or visit our online Support Center.