Start today . . . I mean tomorrow . .OK, maybe next week
“Why waste time today, doing what you can put off till tomorrow?” or how about “resolutions are made to be broken.” Smile as you may at these absurdities (or secret agreement) they’re true, and Vanguard has proof. A study of Vanguard IRA contributors, found more than double the amount of contributions are made at the last minute, in April, than at the first opportunity, in January, nearly 15 months earlier The study went on to detail a $15,500 “procrastination penalty” levied against those last minute contributors.
Is retirement simply not important enough? That’s not true, as numerous studies point to retirement as a top financial goal. Is it because blurry-eyed CPAs on the eve of tax day scare the contributions right out of you? Though the CPAs I know are a bit blurry eyed by April 15th, few of them are that scary. No, I think retirement planning procrastination is a by-product of financial analysis paralysis.
One such deep thinking speed bump to timely contributions may be the question of Roth vs Traditional IRA. My typical response is to embrace a bit of tax diversity and suggest splitting contributions into both types of IRAs, assuming income eligibility. No individual can accurately forecast tax rates in retirement. Contribute to a traditional IRA, and you’ll pay the tax man an unknown amount of tax in retirement. Contribute to a Roth IRA, today, and your tax burden is over and done with, making distributions in retirement tax-free. Contributing to both types of accounts creates a hedge against unknown retirement tax rates, and provides flexibility in managing distributions in retirement.
If you’re still hesitating, pick up the phone (or mouse) and contact your local CPA or CFP. Even if “retirement” is a dirty word in your world, financial independence (at any age) doesn’t just happen. It takes planning, action, and financial resolutions kept, all year long.