Ashley Temer is a Financial Representative with Northwestern Mutual who helps professionals, families, and business owners plan for financial security. She’s here for your “Money Minute.”
An IRA is an effective savings tool because it allows you to access financial markets in a tax advantageous way. Traditional IRA contributions are tax-deductible today, but you’ll pay income tax when you withdraw the money in retirement. With a Roth IRA, you pay taxes on contributions today that income won’t be taxed later if you adhere to the withdrawal rules.
But how much and how often should you contribute? Know how you would like to live in retirement, and also know your limits. As of 2021, the IRS caps maximum amount you can contribute to $6,000 per year if you’re under the age of 50. Keep in mind the market may return more or even yield negative returns in a given year, but in the long run, a long period of time in the market has a pretty big impact on growth.
Your contributions to your IRA should be consistent. This creates a good habit of saving each month and can take advantage of dollar cost averaging. If you haven’t started saving for retirement, don’t worry. It’s never too late to start.