By now a lot of you are starting to think about taxes…we have a little bit of time left before Uncle Sam comes knocking. One simple thing that you may still be able to do to reduce your 2020 tax bill is to contribute to your IRA. Now most of you probably know that you have all the way until April 15, 2021 to make your 2020 IRA contribution, but should you wait that long?
The answer is …probably not.
If you can afford to make your full IRA contribution now, you should try and do so. Why? Because the earlier you make your contribution, the longer the time that money has to grow tax deferred within the retirement account! It’s like getting extra time for tax deferred growth. It’s even better if you are making a Roth IRA contribution…TAX FREE growth starting today rather than tomorrow!
For 2020, the maximum IRA contribution is the lesser of your earned income or $6,000. If you are 50 or older by the end of the year, you can contribute an extra $1,000 for a total of $7,000. Let’s take this a step further. In addition to accelerating your 2020 contributions, why not also accelerate your 2021 IRA contributions?
Earnings vs Contributions
One question you may be thinking is “What If I haven’t earned enough income in 2021 yet to make my full IRA contribution.” Well, you are safe. As long as you will have enough earned income by the end of the year, you are able to make your IRA contributions anytime during the year for 2021. So what are you waiting for? Make your 2020 and 2021 contributions today and start investing wisely! Please visit our website at www.KeystoneCPA.com for more educational content and to download your free eBook.