Contributions as Part of Your Retirement Plan
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Many investors tend to overlook individual retirement account (IRA) contributions as a component of their retirement plan, or, if they do contribute, they don't maximize the opportunity. While many look to maximize their 401(k) contributions, maximizing IRA contributions every year can also be a key way to help your nest egg grow so that you may retire comfortably.
Why Contribute?

The earlier you begin to save and the greater the amount you save, the better chance you have in achieving your retirement goal. But there are additional reasons that make IRA contributions a smart savings and investment tactic.
  • Potential tax deduction for some or all of your contributions — You may be eligible for a tax deduction for contributions made to your traditional IRA. Full or partial tax deductions are available to those who qualify based on their Modified Adjusted Gross Income (MAGI), their eligibility to participate in an employer-sponsored retirement plan, and their filing status.
  • Tax-free growth potential — If you are eligible to contribute to a Roth IRA, your earnings are not subject to federal income tax so long as they are part of a qualified withdrawal.1 Contributions to Roth IRAs are made with after-tax dollars. Consider maximizing your contributions to a Roth IRA as long as you are eligible because this provides the opportunity for federal and possibly state tax-free income in retirement.
  • If eligible, you have until April 15 to make contributions for the prior year — You essentially have 15½ months to reach your contribution maximum for a given year. You may make contributions to your IRA up until that year's initial tax return filing deadline, which is generally April 15th of the following year. (It is usually the 15th of the month, unless the 15th falls on a weekend or holiday, in which case it is the next business day.)
  • Other tax credits — You may be eligible for additional tax savings known as the Saver's Credit or The Retirement Savings Contributions Credit. This tax credit is designed to encourage eligible workers to contribute to their IRA and 401(k). Qualification is based on a combination of income and tax return filing status.
Who Can Contribute?

You may contribute to a Traditional IRA if you are under the age of 70½ and have earned income equal to or greater than the amount of your contribution. The amount of your contribution that is tax-deductible depends on your tax-return filing status, participation in a retirement plan at work and Modified Adjusted Gross Income (MAGI).
You may contribute to a Roth IRA at any age, but you must have earned income equal to or greater than the amount of your contribution and meet the MAGI requirements for contributing to a Roth IRA. In 2014, single filers with MAGI of less than $129,000 and those married filing jointly with MAGI of less than $191,000 are eligible to at least make a partial contribution to a Roth IRA. You may not contribute to a Roth IRA if you are married filing separately and have MAGI of $10,000 or more.
How Much Can I Contribute?

IRA owners under the age of 50 can contribute up to $5,500 to traditional or Roth IRAs for the 2014 tax year.2 You must meet the MAGI requirements to be eligible to contribute to a Roth IRA. Individuals who are 50 or over are allowed to make an additional contribution of $1,000, for a maximum of $6,500 for the 2014 tax year. While you may not contribute to a traditional IRA after age 70½, you may be able to continue making contributions to a Roth IRA (if you meet the relevant requirements).
Creative Ways to Contribute
  • Automatic payments — Set up automatic contributions to your IRA so ongoing contributions become part of your everyday savings strategy. If contributions are automatic, you won't be tempted to allocate the money elsewhere at the risk of your retirement savings. The financial impact won't feel as harsh if you set up smaller routine contributions on a monthly basis rather than a lump-sum annual contribution. Even small monthly contributions can add up over time and the growth potential is greater the earlier you start. Learn more about the Merrill Edge Automated Funding Service™.
  • Spousal IRA contributions — You do not necessarily need to have earned income to contribute to an IRA. A non-working spouse can still save for retirement through potentially tax-deductible IRA contributions so long as the married couple files a joint return and the working spouse has earned enough to cover the contribution. Deductibility of the contribution is contingent on the working spouse's MAGI and eligibility to participate in an employer-sponsored retirement plan. The same concept applies to non-working spouses contributing to a Roth IRA.
  • Catch-up contributions — Want to sneak in extra contributions? The law allows individuals age 50 and over to make additional contributions of up to $1,000 to "catch up" saving in the years nearing retirement.
Ready to Contribute?

Click here to open an IRA.
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1 For a distribution from a Roth IRA to be federally tax free, it must be qualified. A qualified distribution from your Roth IRA may be made after a five-year waiting period has been satisfied (this period begins January 1 of the tax year of the first contribution or the year of conversion to any Roth IRA) and you (i) are age 59½ or older; (ii) are disabled, (iii) qualify for a special purpose distribution such as the purchase of a first home (lifetime limit of $10,000), or (iv) are deceased. If you take a non-qualified distribution of your Roth IRA contributions, any Roth IRA investment returns are subject to regular income taxes, plus a possible 10% additional tax if withdrawn before age 59½, unless an exception applies.

2 You may contribute simultaneously to a traditional IRA and a Roth IRA (subject to eligibility) as long as the total contributed to all (traditional and/or Roth) IRAs equals no more than the contribution limit listed above for the year of the contribution.

Any tax statements contained herein were not intended or written to be used, and cannot be used for the purpose of avoiding U.S. federal, state or local tax penalties. Merrill Edge does not provide tax, accounting or legal advice. Clients should review any planned financial transactions or arrangements that may have tax, accounting or legal implications with their personal professional advisors.