The Internal Revenue Service adjusts how much an individual can contribute to his or her IRA. Maxing out Roth IRA can have benefits but it certainly isn’t for everyone. There are few things you should know before making a decision.
Since the contribution s Roth IRAs aren’t deductible, most individuals might want to take it easy on their contributions. Why you can’t deduct Roth IRA contributions is because they are funded with after-tax dollars. So you’ll pay taxes for your contributions. It’s important for you to have enough money if you want to max out contributions.
This is also where you need to keep an eye on the contribution limits. Generally, every once in a few years, the IRA contributions limit is increased by $1,000. For the time being, the contribution limit is $6,000, plus $1,000 if you’re over the age of 50. This extra contribution limit given is also known as the catch-up contribution.
Whether you qualify for the higher contribution limit or not, the answer of should I max out my Roth IRA really depends. There are a lot of variables that go into and everyone’s finances are different.
Retirement Age – Other Investments – Existing Debt
There are three things that you need to face first before deciding maxing out Roth IRA contributions. If you’re close to retirement, surely, maxing out Roth IRA will be a lot more logical. What you need to pay attention is your other investment options and existing debt such as mortgage.
If you have no debt and don’t have an investment plan yet, maxing out Roth IRA contributions might be a good option. It boils down to your retirement age, investment options you have, and the debt you’re paying.
After all, you wouldn’t want to be behind your monthly payments and face a tax bill that you won’t be able to pay. So it’s important to have enough to keep around for paying off your tax liability as well as other debt.
Should I max out Roth IRA at the beginning of the year?
One argument about maxing out Roth IRA is that you should do it at the beginning of the year. If you’re close to your retirement age and want the most out of your contributions, you can max out at the beginning of the year. This will enable you to receive immediate benefits from the deferral of income generated by your Roth IRA investments.
Those who aren’t close to their retirement won’t really see much benefits to it. You can max out Roth IRA at the beginning of the year, still, but it won’t make any noticeable difference in your investments. So it isn’t really all that necessary.