When Should I Maximize My IRA Contribution Limits?

Mastering Your Individual Retirement Account (IRA)

September 2012

Conventional personal finance advice often can be pretty predictable:

When asked "How much should I save for retirement this year?" most experts will say, "As much as you possibly can - and certainly at least as much as IRA contribution limits allow."

But reality-based retirement planning doesn't always work that way.

IRA contribution limits can shape what you do today to get ready for tomorrow. Typically, the IRA contribution limits are $5,000 per year or $6,000 per year if you're over 50. Be sure to read the Internal Revenue Service's guidelines for all the details.

A number of people in their early 20s, for example, are still struggling with student debt. And for them, the idea of putting aside $5,000 per year into an Individual Retirement Account (IRA) seems daunting, to say the least. Similarly, young families juggling the cost of diapers and daycare also are likely to struggle seeding an IRA. And for these folks and others, reaching the IRA contribution limits can seem less important than buying a home or starting a college fund.

The trick is to start small, but be consistent, Michael J. Fitzgerald, a Certified Financial Planner® with Fitzgerald Financial Partners in Houston, told Ally Bank in a recent interview. "Start small, saving something from each paycheck. Use your raises to boost that savings," he said. "You won't even miss it."

Focus on getting rid of debt, he continued, but then get into the habit of paying yourself first. It may take a little bit of discipline, but it's critical. "Every month, you can either decide what to do with your money, or you can let your money decide," Fitzgerald told us.

"And to make sure you stay on track, schedule times to check up on yourself, and ask - is my savings on track? Is my spending in line? Do we need to change anything?'"

While it may make sense to start small, sooner or later you may want to aim higher, accelerating into serious saving.

According to Fitzgerald, "If a couple can put away $10,000 a year for 10 years in your 20s, by the time you retire, you'll likely have more money than anybody else you know."

Ally Bank has IRA products that can help you meet your retirement needs with the kind of flexibility that smart retirement planning requires. We offer a range of retirement products no matter where you are in your planning process - with no minimum opening deposit required. And our IRA products can help you meet your needs, whether you're looking to maximize IRA contribution limits or just get started with what you can afford.

The IRA Raise Your Rate CD, as an example, comes with an annual percentage yield (APY) that is among the most competitive in the country. But the best part is that if you notice an increase in our IRA Raise Your Rate 2-Year or 4-Year CD APYs, you can request a rate increase — one time with the 2-year IRA Raise Your Rate CD and twice with the 4-year version.

Learn more about all the Ally Bank IRA choices, IRA contribution limits and more at AllyBank.com or call one of our customer care associates at 877-247-ALLY (2559), where live help is available 24/7.

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