Getting Clear on When (and How Much!) You Can Contribute
Ernie Neve, CPA
December 17, 2019
We’re getting SUPER close to the end of the year and, just like every year, we’re getting tons of calls about what accounts can be contributed to after December 31st and which ones will remain open for contributions until April 15th.
Here’s the rule of thumb – If you have a 401(k), ALL contributions end at midnight, December 31st. An IRA – Roth or traditional – can be contributed to up until April 15th.
So how much can you actually tuck away each year?
If you’re under 50, you can put away a total of $19,000. Over 50? You can safely tuck away $25,000.
With your IRA, regardless of how it’s structured, you’ll be able to tuck away ONLY $6,000 or $7,000, depending on your age.
You might not like the fact those limits are so radically different, but “it is what it is.”
Are there some ways you can stretch those limits? After all, some quick math in your head will tell you that, barring investment into some sort of incredibly fast-growing sector, you’ll never have enough to retire if you’re depending on those numbers to fund your life after work.
Well, there are a lot of ways, and I’m not going to share them here, because they are … well … NOT for the faint of heart.
We’d be getting into risk and fiduciary responsibility and an email is not the way I would handle something this important.
But to at least start the conversation, let’s list a few ideas:
· Real estate investment: Buying property is how most, if not all, wealth has traditionally been created, and what worked then still works very well now.
· Creating a Roth Structure to hold assets: Yes, you can legally structure a Roth-based entity to “own” real estate investment or profit-generating assets such as companies. It’s not easy, but if you can imagine owning an apartment complex that generates $100,000 NOI annually, paid into your Roth IRA every month, you can see how quickly you can create a really nice retirement.
· Redefining how you spend: You CANNOT “save” your way to wealth. Let’s get that straight right now. You can, however, quit spending money on consumables and ensure you are buying assets. Do you need a new car every two years? Is it smarter – financially – to buy a late-model vehicle and pay cash for it to negate the interest payments over 5-6 years? How about buying “less” house and using a fifteen-year mortgage instead of a 30 year? “Keeping up with the Jones’” is a terrible waste of your money to merely humor your ego.
It’s not too late to drop money into your retirement accounts, but it’s also not too early to get a new plan created for your financial security.
If you’re ready to ensure your financial freedom in retirement, let’s get scheduled today to discuss your best options for creating wealth.