Early IRA contributions pay off

Last updated: 12/22/2009 3:24:57 PM

Your savings strategy may call for yearly contributions to your Individual Retirement Accounts (IRAs), but don't overlook a simple way to boost your long-term IRA earnings—contribute early in the year.

If you are one of those people who waits until the last minute to contribute to your IRA, you are missing out on an opportunity.

Just because the IRS allows you to make contributions for last year (and apply them to last year's taxes) as late as April 15 of this year, doesn’t mean it’s a good idea.

Contributing early allows your money more time to grow. For example, making your contribution on January 1, 2010, for the 2010 tax year, instead of on tax day the following year, gives you 15 extra months of growth for your money. Factor in the years of contributions before retirement, and you could be looking at a nice chunk of change.

However, for many, making one large contribution isn’t easy regardless of when you write the check. That's why we make it easy to contribute. Employees in Trust Advantage districts can payroll deduct contributions to a WEAC IRA. Or, you can have contributions automatically transferred from your bank account with SmartPlan. Either way, your total contribution is spread out over the year with smaller, more manageable contributions.

If you are not currently contributing to an IRA, consider making it part of your savings plan. An IRA is a great way to increase your retirement savings and take advantage of tax benefits. There are two IRA options available—the Traditional and the Roth.

With the Traditional IRA, you may get a deduction each year for your annual contributions, but all distributions, including any interest, dividends, and capital gains, are taxed as ordinary income when you take the money out.

The Roth IRA works the other way around. Your Roth contributions are not tax-deductible, but all distributions are tax-free, provided you hold the Roth IRA for at least five years and reach the age of 59½.

Regardless of the type of IRA you have, contributing regularly is key to building retirement savings, and early contributions pay off in the end.

For information about WEA Trust IRA programs, call 1-800-279-4030.

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