Fund Your IRA Before April 15: 4 Insights From an Expert


It's not too late to bank your IRA savings for 2014. Source: Wikipedia user Jonathunder.

Tax day is less than a week away, and if you're like me, you aren't looking forward to it. However, there is some good news. You can still take advantage of something that could cut your tax bill: making your 2014 IRA contribution.

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That's right: Even though 2014 has come and gone, the IRS allows individuals up until the income tax filing deadline on April 15 to make contributions to the prior year's IRA limit. If you haven't taken advantage of this opportunity, you still have time. The thing is, saving on your 2014 taxes is only one reason to fund your 2014 contribution, and it might be the least important one.

Let's take a closer look at several insights from Ken Hevert, senior vice president of personal and small-business retirement products at Fidelity, about how the landscape is changing, and why you'd better fund your IRA before tax day.

It's a changing retirement landscape: Will you be ready?People are living longer, and everyone has a certain quality of life he or she wants. But Social Security won't cover everything, and pensions are a thing of the past. Hevert had the following to say on the topic.

The bottom line is that every dollar you put toward retirement today will increase your chances of having the retirement you want to have.

Younger workers saving more?According to what Fidelity is seeing, younger workers are saving more. And that's a great sign. The reality is, many millennials seem to have learned a hard lesson from the recent recession, with many still trying to make up for lost time in the workplace.

Hevert again:

When asked about this point, Hevert said that much of what he's hearing from younger investors is that they're also learning from watching their parents struggle with money and savings and want to avoid the same experience. As he put it, "They are putting their money where their mouths are."

$5 grand today, or $50 grand tomorrow?It's easy to say, "It's only $5,500. I can make that up in a few years." Not so fast. Says Hevert:

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Don'tmake this mistakeGetting the contribution in the account is a start, but that's all it is. As Hevert told me: "A lot of times people think, 'I did a good thing. I made my contribution before the deadline, so I can move on to other things.' But not everybody gets that money invested." It gets back to what he called the "three levers" investors can pull to maximize their returns: time, the right account, and how you invest the money. Here's what it can look like over 30 years if you don't bother investing the money but instead leave it in savings or a certificate of deposit, yielding 2%:

Getting ahead of the retirement gameIf you're reading this, you have an even chance at living to 80 or beyond, and as the preceding chart shows, taking advantage of time to let your money compound is about the biggest advantage you have. Every year you put it off, it'll cost you more and more money to make up for the times you didn't make your contributions. Unless you have a rich uncle or a trust fund, you should take advantage of every opportunity you have to prepare for the future.

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