Individual retirement accounts are a great way to save for your retirement tax-free. What’s not so great is figuring out how you can scrape the money together to take full advantage of it.
The IRS allows you to contribute up to $6,000 in 2018, and $7,000 for those 50 and older. (Those limits are up from $5,500 and $6,500 in 2018.)
If getting the money to max out your IRA contribution isn’t your problem, learn how and where to open an IRA. Once you open an account, you can fund an IRA with cash, a check or a direct transfer from your bank.
Everyone else, read on for advice on how to fill up your IRA to the brim.
1. Let Uncle Sam help you
Yes, certain savers can actually get the government to help them feed their IRA.
Here’s how: Contribute to a traditional IRA and you may be able to get a bigger refund on your taxes by claiming a deduction for your thriftiness. Then, use the extra refund money to build up next year’s IRA contribution.
Are you eligible for this tax deduction?
If you’re covered by a retirement plan at work, you’ll need to earn less than certain amounts to get this little trick to work. For single tax filers, you’ll get the full benefit if your modified adjusted gross income is less than $64,000 in 2019 and $63,000 in 2018, and it phases out for incomes up to $74,000 ($73,000 in 2018). Above that higher amount, Uncle Sam says “no bonus.”
For married couples filing jointly, you’ll get the full benefit if your modified adjusted gross income is less than $103,000 in 2019 and $101,000 in 2018. The deduction phases out completely above $123,000 ($121,000 in tax year 2018).
If you simply earn too much to get this credit, consider opting for a Roth IRA instead. There are income restrictions here, too, but they’re more generous. And you’ll get some seriously good future benefits instead of a tax break today.
2. Let Uncle Sam help you again
The government may come to your rescue again, especially if you’re a low- or moderate-income saver. You can claim the Saver’s Credit on your tax return, which offers up to 50% back on a contribution to a traditional IRA up to $2,000. However, like the trick in the first example, you’ll need to have an income below a certain level to qualify. But if you do, you can take advantage of both tax breaks to fund your IRA.
Married couples will need a joint adjusted gross income below $38,500 in 2018 ($38,000 in 2018) to claim the full 50% benefit, while single filers cannot exceed $19,250 ($19,000 in 2018). The 2019 credit is completely phased out for married incomes above $64,000 and for singles above $32,000, and $63,000 and $31,500, respectively, in 2018.
Get that tax credit, then roll it into your next IRA contribution.
3. Break it down
Sometimes the hardest part of getting funds for your IRA is just getting started. After all, $6,000 is a chunk of money and it can be difficult to scrape together, especially if you’re waiting until the last minute to fund your IRA. In that case, it can be useful to break down that annual goal into smaller amounts — even daily if that’s what gets you to save.
To max out your IRA in 2019, you’ll need to save an average of $16 per day, or $115 per week. Set aside that amount, then transfer it to your IRA on a daily or weekly basis.
» MORE: Read up on all things IRA
4. Pocket your tax refund
If the modifications in tax law during the past several years have resulted in a lower tax burden — or delivered an unexpected refund after you filed — use that money to prop up your retirement savings. If at all possible, keep your spending where it was before this windfall and funnel that extra into next year’s IRA contribution. “Found money” is a great opportunity to get ahead on your savings plan.
5. Pay your IRA first
Steal a play from your employer’s retirement-plan playbook: Tuck away your IRA money before you can spend it. Set up your accounts so that they funnel money to your IRA with every paycheck, just like a 401(k) plan does. If you receive a paycheck every two weeks, allow the brokerage to dip into your bank account and transfer your contribution on payday.
With 26 paychecks a year, you’ll need to siphon out about $230 each time to max out the contribution limit in 2019. Even if you can’t give up that much at a time, move some money on payday when you’re flush with cash. The rush of new money eases the pain of having to save.
Funding an IRA
If you’re ready to get started with an IRA, open an account with one of the top brokers. See our review of the best IRA account providers.