As cash bonuses, capital gains distributions, and holiday cash gifts provide ample liquidity, consider the opportunities that abound for funding Roth IRA accounts.
In a perfect world, we would probably want all of our money in Roth IRA accounts. The reason is simple: tax free growth over your entire lifetime, and perhaps even longer if heirs understand their stretch opportunities.
- Between now and December 31, 2013, you have the opportunity to decide how much to convert to a Roth IRA. Any amounts converted will be taxed now, but will enjoy tax free lifetime growth. Even if you are in a high tax bracket, the critical question is will you ever be in a lower tax bracket? For many people the answer is no, even in retirement.
- As the New Year rings in, you will also have the opportunity to contribute to a Roth IRA for 2014. Investing at the beginning of a new tax year gives you the benefit of earning money on your investments all year long. In the case of 2013, the S&P 500 has advanced over 26.5%, as of November 22, 2013. If you failed to contribute in the beginning of the year, this growth remains stubbornly taxable.*
- Contributions for 2013 can also still be made until April 15, 2014. Currently, the maximum you can contribute in both 2013 and 2014 is $5,500 if you are under age 50 and $6,500 is you are over age 50.*
*There are adjusted gross income (AGI) phase outs for contributions. If your joint adjusted gross income is over $178,000, your contribution amount will be lowered until it is completely phased out at an AGI level of $188,000. For single taxpayers, the initial phase over AGI level is $112,000 and is completely phased out at $127,000.
The trifecta of a conversion, along with a 2013 and 2014 contribution are all possible within the next two weeks. Improve your odds of achieving financial independence by investigating these strategies now.