Whether they’re given bad advice, or they just don’t know, many people misunderstand some important financial matters – often to their financial detriment. Here’s one of the biggest areas of confusion: A sizeable coterie of people believe that they don’t qualify for an IRA contribution, presumably because they contribute to other retirement plans – 401(k)s, 403(b)s, and the like. Wrong, wrong, wrong! The rules clearly state that if you have W-2 income or your spouse has W-2 income, you qualify for an IRA contribution. Do you participate in other retirement plans? It does not matter. Even people over age 70 who are still working qualify to make an IRA contribution.
Some of the confusion may be due to the tax deductibility limits on certain IRA contributions. Your level of income and your participation in other plans may preclude a tax-deductible IRA contribution. (Roth IRA contributions are never tax-deductible.) Just because an IRA contribution is nondeductible it is still beneficial. Sure, you have to fund it with after-tax dollars (just as you do with a Roth) but the IRA money will grow tax-deferred. Also, the very liberal IRA withdrawal rules offer lifetime tax advantages and may even benefit your children, grandchildren, or other relatives who will be on the receiving end of your estate. So, please go forth and contribute to an IRA by the April 18, 2023 deadline. Annual IRA contributions are every bit as important for retirement saving as those to workplace plans. Remember, this is a use-it-or-lose-it proposition. Once tax day passes you can no longer contribute for the previous year.
Smart Money Tips
- Both a saver and investor There’s a whopping difference between “saving” and “investing.” Saving regularly and investing those savings wisely are two important ingredients to achieving the financial security that all of us desire. It’s important to recognize that these are two separate matters. Unless money mysteriously appears on your doorstep or you have the good fortune to have relatives who just give you money, you must save (i.e., spend less money than you take in) in order to be able to invest. But some people who are adept at saving aren’t very good at investing or may think saving money and sticking it in a savings or checking account is sufficient. Of course, this is better than not saving at all. However, it’s unlikely that you’ll be able to achieve your financial dreams if your money doesn’t grow at a rate that outpaces inflation. There are other worthy options that beat the anemic interest rate offered by savings accounts these days.
- Prepare for adversity. No one likes to think about unexpected problems or calamities that all too often befall us. But the better prepared you are for such events, the better able you and your loved ones will be able to survive without incurring a huge financial hit. For example, if you’re in the workforce, protect your income with disability insurance. Make sure your home or apartment is adequately insured. If you have young ones in your life, teach them financial responsibility. If you’re married, work hard to preserve your marriage. As the saying goes: “Marriage may be grand, but divorce is about a hundred grand.” Every adult needs a will, as well as other documents that protect you in the event you become incapacitated. Finally, always maintain adequate life insurance coverage to provide for surviving family members. It used to be that life insurance wasn’t necessary after the kids left college, but many families are finding that their life insurance needs extend well beyond this.
Food for Thought
I have known, as who has not, personal disappointments and despair. But always the thought of tomorrow has buoyed me up. I have looked to the future all my life. I still do. I still believe that with courage and intelligence we can make the future bright with fullfillment.
-Bernard Baruch
Money Can Be Funny
Our Founding Fathers objected to taxation without representation. They should see it today with representation.
-Anonymous
Word of the Week
riparian – adjective (rahy-PEY-reeuhn) – Of, relating to, or situated on the banks of a river.
Origin: From the Latin verb riparius, meaning “related to riverbanks” – ripa, which is “riverbank.”
The picnic by the banks of the Rhine provided an afternoon of wonderful riparian enjoyment.