These days we need to do all we can to boost our retirement savings, and tax breaks can help. To build your individual retirement account and maximize your potential savings, here are some IRA tax tips:
• Open an IRA ASAP. The earlier you start, the longer your savings will compound tax-deferred. Those extra early years of compounding can amount to a sizable sum of money come retirement age. Even teenagers or college students should consider saving some of their earnings in an IRA.
• Tax-free investment tip. Don’t put tax-free investments, such as municipal bonds, in a traditional (SEP or SIMPLE) IRA. You’ll end up paying ordinary income tax on money that wouldn’t have been taxed, or you’ll sacrifice earnings for a tax benefit you’ll never receive.
• Remember catch-up contributions. If you’re age 50 or older, you can contribute an extra $1,000 to your IRA. That’s in addition to the regular $6,500 limit for 2023.
• Name the right beneficiary. Your choice of beneficiary can affect how quickly IRA funds must be distributed after you die. The longer money stays in the IRA, the longer it grows tax-deferred.
• Choose more than one beneficiary. Naming a contingent or backup beneficiary gives your heirs tax planning opportunities after you die.
• Choose the right type IRA. Decide whether a Roth IRA or a traditional IRA is best for your age and circumstances. You can’t deduct contributions to a Roth, but distributions are generally tax-free when you retire.
IRAs may seem straightforward, but missteps can be costly. If you’d like answers to your IRA questions, please call.
Fred T. Fox III is a Lawton native who owns his own business.