You CAN Still Contribute to Your IRA, but SHOULD You?

You can still put money in your IRA for 2017.  You have until 4/15/2018 to make your 2017 IRA contribution.

But just because Uncle Sam says you CAN, doesn't mean you SHOULD.

Over the next few installments, Financial Zen Education will give you everything you need to figure out if you should contribute.   And if so, where you should put it - Roth IRA or a Traditional IRA.

Let's start with the bare-bones basics.

 

Traditional IRA
How it works: 

  • You deposit money in it today. 
  • Your money grows for the next 10, 20, 30 years tax-free.  
  • You withdraw the money in retirement to buy groceries, vacation, etc.
  • You pay taxes on the money you withdraw.   (You pay at your tax-bracket rates, NOT the lower, long-term capital gains rates.)   

 

Roth IRA
How it works:

  • You deposit money in it today. 
  • Your money grows for the next 10, 20, 30 years tax-free.  
  • You withdraw the money in retirement to buy groceries, vacation, etc.
  • You do NOT pay taxes on the money you withdraw.

 

I know you're asking yourself "Why would I ever put money in a Traditional IRA?  If I wouldn't pay any taxes when I withdraw, shouldn't I only put money into a Roth IRA?"

Spooky how I knew that, huh?

That's a very smart question.  There's a good reason you might still want to put money in a Traditional IRA.   And it depends on how much income you make today.

And more on that next week….(don't you just love cliffhangers?)