We’re almost at the end of the year - have you made your IRA contribution yet?

With the end of the year approaching, you’re rapidly nearing the end of your window of opportunity to make your annual Individual Retirement Account contribution. Whether you put money in a tax-deferred traditional IRA and take a write off or you fund a Roth IRA with after-tax money for tax-free withdrawals, you only get one shot per year to make your IRA deposit. If you miss the end of the year, you can also make your 2013 contribution until April 15, 2014.

For the 2013 tax year, the IRS lets you put $5,500 into your individual retirement account. However, if you’re at least 50 years old, you can put in an extra $1,000 for a total contribution of $6,500. Note, though, that while IRA contributions generally aren’t limited, your ability to fund a Roth IRA can be limited based on both your income and your access to other retirement options like workplace plans. 

What Your Contribution Saves

Making your IRA deadline is an important way to build your wealth. If you pay tax in the 33 percent Federal tax bracket and live in a state with 7 percent tax, missing the ability to contribute $6,500 tax-free will leave you with only $3,900 to put in a taxable account. 

Missing a Roth IRA contribution deadline can cost you too. $6,500 invested at 8 percent compounded for 10 years turns into $14,033. In a Roth, the entire $14,033 is tax free. In a taxable account, you could be subject to tax on your $7,533 in profit. If that profit comes in fully-taxable form — like dividends from a REIT — you’d pay over $3,000 in tax on it at a combined 40 percent federal and state rate. With this in mind, meeting your IRA deadline is one of the best wealth-building strategies you can follow.

Individual Retirement Account Alternatives

If you’re comfortable investing your retirement in stocks and bonds, investing in your IRA is relatively easy to do. You send a check to your broker and buy paper investments with the money. What do you do if you aren’t comfortable the American economy or the U.S. currency? After all, IRAs limit you to paper-based investments, don’t they?

You do have other options for your individual retirement account. The self-directed IRA is a special type of account that lets you control the assets in your IRA, instead of depending on a custodian to determine what you can buy. With a self-directed IRA — and good strategy — you can invest your money here or overseas, in dollars or in any other currency. You can also buy a range of different investments, including real estate, precious metals and even rare strategic metals. By diversifying your IRA, you get all of the tax benefits of a regular IRA along with the protection of having your money in a different asset class and, potentially, in a different country.

Be Sociable, Share!

•