The IRS recently released its new IRA contribution limits for 2013, and the news is good: For the first time since 2008, the IRS is boosting the contribution limits. This is good news for those looking to increase their tax-advantaged retirement contributions. The news is especially good for those who contribute to Roth IRAs, since it increases the money that can be added to the account and grow tax free.
With the new change, once again it’s worth considering what you can do to arrange your finances to contribute the maximum amount to your IRA.
Increasing Your Retirement Account Contributions
It makes sense to increase your retirement contributions when you can. More capital in your account means that you have more money working your behalf. In a tax-deferred account, like a traditional IRA, it means that you can take a bigger tax deduction for your contributions, saving money on your tax bill now.
For a Roth IRA, it means that you can increase the amount of money in your account that is growing tax free. This is a good thing, since the more capital you have, the better your earnings are likely to be. Your investments can grow at a quicker pace — and you won’t have to pay taxes on those earnings.
The IRS has announced that you can contribute $500 more in 2013 than you can in 2012. If you are already contributing the current maximum allowed by the IRS to your IRA, you just need to find an extra $41.66 in your monthly budget to boost your IRA contribution.
But what if you aren’t already maximizing your IRA contributions?
If you aren’t contributing the maximum possibly amount to your IRA right now, it’s a good time to make a plan to increase your account contributions. You don’t have to do it all at once, though. It can be hard to go from contributing $200 a month to your IRA to contributing $458.33 a month (the amount needed to contribute $5,500 a year).
Create a plan to gradually step up the amount of your contribution. First of all, identify how much more each month you need to contribute in order to hit the yearly maximum. In our example, the shortage is $258.33 a month. In order to max out yearly contributions, that’s how much needs to be found in the budget.
Start small. See if you can find $50 extra to add to the contribution. You can accomplish this by looking for unnecessary expenses to cut from your budget, or making a little extra month through a side hustle. Step up your contribution by $50 and make a $250 contribution for a month or two. Then, look for another $50 in your budget, stepping up your contribution to $300 a month. You can see how this works. It’s much easier to find $50 in your budget than it is to find $258.
With the right planning, and prioritizing, it’s possible to increase what you contribute to your IRA each month until you max out your yearly contribution. Then, the next time the IRS announces an increase to contribution limits, it will be easier to find the extra money in your budget to continue contributing the maximum amount.