Get your IRA on track for the 2007 tax year

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With your 2006 taxes behind you, the last thing on your mind may be the 2007 tax year, but our friends at The Vanguard Group suggest that one item deserves your prompt attention: funding your IRA to the maximum.

Vanguard suggests that investing in your IRA early in the tax year-instead of waiting until the next April 15 deadline-helps you to gain the most benefit from your contributions, thanks to the benefit of compounding.

By contributing to your IRA early in the year, you give the returns on your investment more time to earn their own returns, and so on. Compounding can play a powerful role in the growth of your retirement portfolio.

For the tax year 2007, the contribution limits for the Traditional IRA and Roth IRA are $4,000 if you’re under age 50 and $5,000 if you’re 50 or older, provided you have that much in earned income or are the spouse of a wage-earner.

Anyone who is self-employed or owns a small business can make employer and personal contributions to a SEP IRA as allowed by his or her plan. The employer contribution limit is 25% of compensation up to $45,000; the personal limits are the same as those for Traditional and Roth IRAs.

One approach to making IRA contributions early in the year is to put your self on an IRA contribution budget in which you contribute a fixed amount weekly or monthly to your IRA.

To learn more about IRAs and other retirement planning strategies, please visit Soundview Financial’s Retirement Savings Guide.

Explore posts in the same categories: Individual Retirement Accounts (IRA)s