Original Article From The Motley Fool by Dan Caplinger
Saving for retirement is important, and your biggest enemy is procrastination. The sooner you start investing, the better — and it’s even smarter to take advantage of the tax-saving opportunities that the federal government gives you in order to encourage greater retirement savings.
If you had a job or made money in a business or side gig during 2018, then you’re eligible to save money for retirement using an IRA. It’s not too late to open an IRA for the 2018 tax year and reap savings on your tax return right now — but you only have until April 15, and there are several things you have to get done by then in order to claim your big tax break. Here’s a simple checklist to follow in order to get the job done.
1. Find a financial institution that’ll let you open an IRA
Fortunately, you won’t have much trouble finding a way to open an IRA. A host of financial institutions, including brokers, mutual fund companies, and banks, offer IRAs. To pick the best one, you’ll want to focus on exactly what types of investments you want for your account.
Online brokerage companies give you the most flexibility in choosing investments. You’ll be able to pick among stocks, bonds, exchange-traded funds, mutual funds, and many other types of investment assets with a brokerage account. That way, you won’t get stuck with poor options that limit your ability to reach your financial goals — and sometimes charge huge fees along the way that will drain your retirement savings rather than building it up.
2. Pick the type of IRA you want
Next, you’ll need to figure out which type of IRA you’d like: Roth or traditional. The traditional IRA gets more love from investors, because it usually lets you take an immediate tax deduction that will boost the size of your refund check right now. The downside is that although you’ll get tax-deferred growth while the money stays in the IRA, you’ll have to pay taxes on withdrawals in retirement.
By contrast, a Roth IRA gives you tax-free treatment on most withdrawals. However, the price is that you give up the chance for an up-front tax deduction.
In some cases, you might not have a choice. If your income is too high, then Roth IRAs are off-limits. You’re always allowed to contribute to a traditional IRA, although high-income taxpayers might lose some or all of the tax deduction for those contributions. You can get more information about these income limits here.
You can also choose to open two different IRAs, one Roth and one traditional. Just keep in mind that the annual maximum contribution applies to the total you contribute, so you’ll need to split that amount between the two accounts if you go that route.
