Didn’t Max Out Your 2021 IRA? Here’s Why You Shouldn’t Sweat It

You can’t rely on Social Security alone to pay your bills in retirement. Those benefits are designed to replace about 40% of the average earner’s pre-retirement wages.

But seniors typically need a lot more money than that to live comfortably. And so retiring on Social Security without any other income source is a plan that could backfire in a very bad way.

To avoid financial struggles in retirement, it’s a good idea to sock money away consistently in a dedicated savings plan. And if you don’t have access to a 401(k) through your employer, then funding an IRA is a smart bet.

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In fact, it’s actually a good idea to aim to max out your IRA contributions every year. Maxing out a 401(k) isn’t as easy, because those plans come with higher contribution limits. But right now, IRAs max out at $6,000 a year for workers under 50 and $7,000 a year for those 50 and over.

These limits are unchanged from 2021. And they’re also attainable even for an average wage-earner.

But what if you missed the boat on maxing out your IRA in 2021? It may be that you encountered some unplanned bills that prevented you from fully funding your retirement account. Or maybe you lost track of your spending and at the end of the year, there just wasn’t enough money to max out your annual contribution.

The good news is that if you regret not maxing out your 2021 IRA, you’re not out of options. In fact, you can still sneak money into your account and have it count for 2021.

You get some leeway

If you’re saving for retirement in a 401(k) plan, your money must land in your account by December 31 for it to count for that tax year. But with an IRA, you get more leeway to fund your retirement plan.

If you didn’t max out your 2021 IRA, you have until this year’s tax-filing deadline to make your contributions. And so let’s say you were looking to max out your IRA but only managed to sock away $4,500 last year. If you fund your IRA with another $1,500 before the tax-filing deadline this year, it’ll count for 2021.

That could help you a lot from a tax standpoint if you’re saving in a traditional IRA. Traditional IRA contributions are tax-free, so the more money you put in, up to the annual limit, the less income the IRS taxes you on.

If you’re not sure how to squeeze more money into your IRA, take a look at your budget (or set one up if you don’t have one yet) and see if there are any bills you can trim. You can also look at getting a side job on top of your main one to eke out that cash.

Remember, funding an IRA in full won’t just give you a tax break. It could also spell the difference between having enough money during retirement and having your senior years be a struggle. And for that reason alone, it pays to push yourself to max out every year.

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