Most of us have heard of financial gurus touting the many benefits of investing in an IRA. Depending on whether one goes with a traditional Individual Retirement Arrangement or Roth, participants can get some tax benefits with their contributions or on their withdrawals.
No Money for Your IRA Contributions?
With those tax benefits, you’d think that most people would be aggressively contributing to their IRAs. However how many people actually maximize their contributions (currently it’s $5000/year)? Why is that the case?
One of the biggest obstacles I hear from people about why they are not contributing money into an IRA is that they don’t have the extra money in their budget. With budgets already tight, they feel like retirement contributions are out of the question.
The good news is that you can make some adjustments to your budget that will help you save for later without drastically sacrificing your budget now.
Finding Money in Your Budget
If you’re looking to jump start or increase your retirement contributions, here are some big ways to find money in your budget.
- Proper Withholding on Paychecks: If you haven’t reviewed your w-4 in awhile, you may want to look at it again. When it comes to withholding on your wages, you could optimize your finances by simply adjusting to what could work best for you. For some, being conservative with their withholding means they can get a bigger refund come tax time, which they can immediately use to fund their IRAs in one swoop. For others, getting more money in their paychecks throughout the years can be the right choice as they set up automatic contributions to keep them on point.
- Take a Week to Shop Insurance: Sometimes we can get into a comfortable habit of staying with the same insurance company simply because we’re used to dealing with them. There’s nothing wrong with being loyal to a good company, just make sure you’re getting value for your loyalty. For us, switching car insurance has cut our premiums by almost half. For my mother, calling around got her current insurance company to lower her bill.
- Consolidate Student Loans: If you qualify for lower rates with a student loan consolidation, you should seriously check it out and run the numbers. The money saved can then be redirected towards your IRA.
None of these adjustments will hamper your budget now, yet they can save you a good amount of money. If possible, once you make the change set up an automatic contribution to your IRA so you can stay on target.
Thoughts on Funding an IRA
I’d love to hear from you about your retirement contributions. How did you find money to contribute to your IRA? What has been the easiest adjustment you’ve made? What has been the hardest?