Setting up a retirement fund may be easier than it appears. You don’t have to worry about spending much on the IRA as the maximum IRA contribution limits per year are $5000 (or $6000 if you are over 50 years of age).
Here are 7 easy ways in which you will be able to find out how to fund an IRA:
1. Funding From Your Tax Refunds
Tax refunds can be useful sources of cash to fund an IRA. The benefit of using tax refunds is that since it is money that has already been paid out by you, it won’t really make a difference when you use this money to fund your IRA. However, rather than directing the entire amount of the tax refunds towards the IRA fund, it may be wiser to use the refunds to contribute to the 401(k) plans. The remaining amount, if any, can be directed towards the IRA.
2. IRA Tax Deduction
If you are eligible for an IRA tax deduction or a deductible contribution then you can make prior-year contributions to IRA, which are tax-deductible. If, however, your employer provides you with a retirement plan and your income exceeds the maximum level, then your IRA contribution may not be deductible as per the IRA contribution rules. The benefit of using pre-tax dollars to fund an IRA is that it will reduce your tax burden. Indirectly, this shows you how IRA contributions can increase your tax refund.
3. Tax Holiday – Payroll
Employees and employers had to part with 6.2% of their salaries for the payroll tax. However, after the introduction of the payroll tax holiday, employees only have to pay 4.2% towards payroll tax. This means that there is additional cash available to fund your IRA. This may be a small amount but most importantly, you won’t feel the pinch when you part with this amount!
4. Annual Salary Increments?
Most employees benefit from annual pay rises from staying with a company. Pay rises can be anything from 2% to almost 5%. If you receive an annual pay rise, instead of spending this extra income, it may be wiser if you invest this money on a retirement fund – 401(k) or IRA.
5. Using Windfalls Wisely
When people receive windfalls (such as an inheritance or a bonus at work), they tend to blow the money frivolously. Rather than spending the money this way, it is better to save the money for a rainy day – for instance, investing in an IRA or a savings plan. Since you were not expecting this money, you may be able to do without spending it frivolously! Maybe a little spending won’t hurt, but remember to be wise in your spending nonetheless.
6. Tax Credit Advantage
Why not turn your taxable income into savings? For low income earners (earning less than $28,750 per annum in 2012), it is possible that they may receive tax credits of up to $1,000 if they make contributions to an IRA or retirement plan that is employer sponsored.
7. Cutting Down Expenses
Although the aforementioned tips are some of the best ways on how to contribute to an IRA without feeling the pinch, the best IRA funds come from cutting your expenses. There may be several expenses that you may incur each month that may not be a necessity. For instance, if you take your lunch to work instead of buying lunch every day, you stand to save around $25 a week. If you can make small savings by reducing the expenses, you will easily be able to fund your IRA from these savings.
Do you have any special tips and advice to give to other people that will help them fund their IRA?
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