1. Contribute as Much as Possible
If you’re under the age of fifty, your maximum contribution amount for the year 2014 is $5,500. If you’re over fifty, you can contribute more through “catch-up” contributions. Those taking advantage of the “catch-up” contributions can put in up to $6,500. The important thing is that you continuously contribute to your IRA fund. Your spouse can also contribute, even if they do not have an earned income (in order to have an IRA, however, one of you must have an earned income).
2. Know the Difference Between Traditional IRAs and a Roth IRA
The difference between a Roth IRA and a traditional IRA comes down to taxes. With a traditional IRA, your contributions can be tax-deductible, willing you meet particular eligibility requirements. However, you contribute after-tax earnings when using a Roth IRA. So, do you want to pay taxes now or later? Some would argue that the advantage of the Roth IRA is that it prevents you from paying potentially higher taxes that will be set in the future. Either way, contacting an IRA professional helps to guide you in the process.
3. Use The Back Door
If your income exceeds the allowable limit for a Roth IRA, you may want to consider using what people call a “back door” Roth IRA. Essentially, you’ll be contributing funds to a traditional IRA and then later converting those funds into a Roth IRA. There may be very little or no tax impact with this transaction. However, if you’ve got significant IRA assets with pre-tax contributions, you may want to reconsider this option.
4. Reconsider Your Use of Traditional IRAs
Most investors will agree that the use of traditional IRAs should be minimized when considering a long-term investment strategy. Specifically for retirement. While the account may grow tax-deferred, contributions aren’t deductible. Plus, you’ll be paying income taxes on earnings you withdrawal.
5.Watch Out for Hidden Costs
We all know that the performance of the market can have a significant impact on your IRA’s bottom line. However, investment costs can also really “drag” your retirement savings down as well. While market returns can raise and fall, operating expenses can continue to chip away at your account for a long period of time.
6. Know Your Investment
It’s wise to invest in an area or market where you’re an expert. Knowing the ins and outs of a particular investment is akin to knowing your lines a play. You’ll be able to give a much better performance if you know what you’re doing. The same goes for investing. In fact, many people do extensive real estate research just to broaden their scope of investment opportunities. Of course, we’re not all experts on a myriad number of investment options out there.
If you must, broaden your knowledge with heavy research and understanding. Although it may seem like a lot of work at the time, it’s most definitely going to make a huge difference in the end.
7. Know the Laws
As already mentioned briefly here, it’s important to know the laws and regulations in the world in which you are investing. A small misstep can cause catastrophic results, severely impacting your retirement savings.
This article was written by John Livingston. John is a wealth of information and loves sharing his financial and investment expertise with others. In his spare time he enjoys reading and writing all things finance.