Why Bother with an IRA in 2019?

You probably hear from different sources that you should consider funding an IRA, but you may be wondering, why bother? Here are four good reasons:

1. You can still contribute for tax year 2018 up to $5,500 or $6,500 if you’re better than 50 years old. You have until tax filing day in April 2019 to make a deposit to your IRA for tax year 2018. Use this opportunity before you lose it.
2. The market is off its recent highs, so fund your 2019 IRA while investments are on sale.  The 2019 limits are $6,000 or $7,000 for those better than 50 years of age.
3. Consider the Roth IRA. It delivers tax free distributions in retirement. It’s never easier to pay your taxes than during a year when you are a W-2 employee and the boss takes funds out of your paycheck to pay federal and state taxes. When you are retired and spending this money, you will not want to pay taxes on every distribution on top of the money you want to spend.
4. Even if you earn a lot of money (in 2018, more than $73,000 for an individual or $121,000 for a couple filing jointly; in 2019, more than $74,000 for an individual or $123,000 for a couple filing jointly) you can contribute to a Traditional IRA account with no tax deduction. This gives you some of the benefits of a Roth IRA, without an income limit. Your contribution grows tax-free, but all growth in value, dividends and interest will be taxed as regular income when you take it out.

Every distribution is treated as though it includes deposits and growth. So every distribution has some tax liability. This is a great thing to discuss with your fee-only, fiduciary, CERTIFIED FINANCIAL PLANNER™ professional.

A word of caution

Sometimes you are not allowed to contribute to an IRA.

• You need to have taxable earnings to save to an IRA. Pensions, social security, dividends and interest are all forms of income that do not qualify you for an IRA contribution.
• If you are better than 70 ½ years old you are not eligible to save to a traditional IRA. You can add to a Roth IRA.
• For 2018:
  • As an individual, if your Modified Adjusted Gross Income is more than $120,000 but less than $135,000 you are not allowed to add a full contribution to a Roth IRA. But you can add a reduced amount.
  • As an individual, if your Modified Adjusted Gross Income is more than $135,000 you are not allowed to add to a Roth IRA.
  • As a married couple filing jointly, if your Modified Adjusted Gross Income is more than $189,000 but less than $199,000 you are not allowed to add a full contribution to a Roth IRA. But you can add a reduced amount.
  • As an individual, if your Modified Adjusted Gross Income is more than $199,000 you are not allowed to add to a Roth IRA.
• For 2019:
  • As an individual, if your Modified Adjusted Gross Income is more than $120,000 but less than $135,000 you are not allowed to add a full contribution to a Roth IRA. But you can add a reduced amount.
  • As an individual, if your Modified Adjusted Gross Income is more than $135,000 you are not allowed to add to a Roth IRA.
  • As a married couple filing jointly, if your Modified Adjusted Gross Income is more than $189,000 but less than $199,000 you are not allowed to add a full contribution to a Roth IRA. But you can add a reduced amount.
  • As an individual, if your Modified Adjusted Gross Income is more than $199,000 you are not allowed to add to a Roth IRA.

Get some good advice

As you ask yourself how to max out your IRA before the tax deadline, it’s a great time to have a talk with your financial planner. If your advisor is a fiduciary advisor – one who is always your advocate – and a fee-only advisor – one who is only paid by you – she can be an excellent resource to help you consider what is the smartest thing for you to do.

Don’t have a financial planner? I suggest you start by locating a  CERTIFIED FINANCIAL PLANNER™ professional in your neighborhood.

CFP® professionals take a multi-faceted approach to your financial planning process that includes budgets, risk protection, retirement planning, investment management, taxes and estate planning. All these related aspects of your financial life are the foundation for a great plan to make the most your financial life.

Yes, I am a CFP® professional. I’m always a fiduciary and I only work on a fee basis. And yes, I’m still taking on a few great families to be part of my financial planning practice.

A CFP® professional can help you create a financial plan that is driven by your goals and priorities and addresses all aspects of your financial life. With a big-picture approach, you will be better prepared to understand your options at every step along the way.

If this article has you thinking about your own circumstances, contact my office at rdunn@dunncreekadvisors.com. I am always happy to meet with people who are working on their retirement plans. Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.