IRA’s Are Free Money
UPDATE 11/26/2021
I lost track of what was going on, and left out a real juicy strategy for first-year contributors to a traditional IRA.
Hypothetically, it’s possible to max contribution with only $4000. That is because you can claim more than you actually put in, and collect the credit. Of course, you’ll need to make good on that claim by …I think April 15th or something like that. But by then, you’ll have gotten your tax refund!
Normally we don’t disclaim anything because we don’t care, but before you go committing tax fraud and blaming Rockydennis for bad advice (which the IRS wouldn’t care about, you’d still be the one responsible), we’re explicitly telling you not to attempt to defraud the IRS.
Everybody gets one. This is your one.
(This also counts towards the one you get from Spider-Man).
Maxing out your IRA every year is a huge win, both for your future self and for you this fiscal year.
That statement applies to both Traditional and Roth IRA’s (even though you don’t get the tax credit for a Roth). In fact, I can just stop here, the point is made. Max your IRA.
But we’re not stopping there, nor are we explaining IRAs. It’s a natural progression that we’d do an article comparing the two, but not today! Today we’re going to explain why, with a combination of math, anecdotal evidence, tax incentive, and delusion, we’re going to score free money from the IRS just for being responsible adults!
Okay so this is based entirely on last year where my contribution go up to a whopping total of $660 or thereabouts. However, I appeared to have received a tax credit for 50% of the amount I contributed to my traditional IRA ($330). Maybe I’m just retarded, but let’s assume that this is the case. For the sake of this article. …the part where I’m correct, not the retarded part.
According to Fidelity, the max contribution is $6000, but according to YouTube and Yahoo! search headlines, it’s $5500. It doesn’t really matter if we’re getting 50% back each year after the first year. So if we put up $6000, and get $3000 back after a year, then we only really need to contribute $3000 a year from then on to max out, because we put the credit we received back into the IRA!
I’m pretty sure it makes more sense to make a contribution at the last minute, so you can utilize that capital prior to depositing it…unless you don’t give a flip, then deposit it sooner than later. Fidelity can manage your money quite well if you don’t get down on any kind of active trading. Honestly, I’ve got both accounts in my traditional IRA - the one I manually invest/trade in, and the other is automatically managed by Fidelity. Additionally I’ve started a 529, handled by Fidelity. While it can be fun to compare the different investing styles, since the two portfolios are significantly different, it gets old fast. Fidelity pretty much always gains.
I’m not trying to ride the D here, they just have a solid track record of winning. I’m sure the other major brokerages can boast the same or similar numbers, but I haven’t checked. When I get around to opening a Roth I’ll probably use Schwab.
You can have multiple IRA’s. An infinite number if you want! However, you can only contribute $6000 max across all of them. Or $5500. Depending on what reality you’re in.
So really I haven’t provided any new information, but maybe just a slightly different way of looking at contributing to your IRA. I mean, why would you not just put it right back in?