Tips for Managing Your Individual Retirement Account (IRA)

An IRA can be a very effective retirement planning tool. Here are tips to help you effectively manage it and make it work for you.

Max it out

Every year, try to add as much money to your IRA as the government allows. If your budget can’t support a full contribution, gradually increase your contributions until you can reach the maximum. You can contribute up to $5,500 per year to both an IRA and Roth IRA plan. This goes up to $6,500 each if you’re over 50.

Make it automatic

Fund your IRA automatically using a payroll deduction, direct deposit, or automatic transfers from your checking account. Automating the process lets your savings grow consistently. The money for retirement savings never mixes with your spending funds.

Mix & match

There is no limit on the number of IRAs you can own. You can split the tax benefits of Traditional and Roth types and get a partial deduction now while earning tax-free income in retirement. You could also keep your income investments separate from growth investments. Opening multiple IRAs also allows you to list different beneficiaries for each so you can determine which assets to give to each recipient.

Watch but don’t touch the money

Traditional IRAs and IRA certificates may trigger early withdrawal penalties. The IRS will levee a 10% penalty if you withdraw prior to age 59 ½. That doesn’t mean you have to make a withdrawal at age 60. For traditional IRA plans, you will need to make your first withdrawal at age 70 ½. You may withdraw your contributions from your Roth IRA at any time with no government penalty.

Avoid early withdrawals

While your money may seem available, withdrawn funds are no longer working for your retirement or receiving preferential tax-treatment. Plus, a withdrawal is not a loan and cannot be paid back. You can only contribute the federally mandated maximum each year — not the maximum plus what you may have withdrawn.

Understand the tax benefits

Traditional and Roth accounts offer substantial tax benefits. But, these tax advantages differ depending on when it is subject to taxation. Explore the benefits.