Lately, I’ve been hearing some confusion on the part of folks I’ve been talking to about their financial goals.
For example, a person said to me, “I’m not sure I want to save money into my IRA this year because I think the stock market will fall soon and I don’t want to lose my money.”
As I reflect on these conversations, I notice that there are two or three issues that seem to be bundled together as one.
Should you save into an IRA this year?
A few considerations:
- Do you want a tax deduction for the traditional IRA this year?
- Do you want to add to your pile of tax-free Roth IRA money for retirement?
- Do you have enough money saved into an emergency fund and short-term savings priorities and you are now ready to add to retirement savings?
- Do you want to be sure not to miss this year’s IRA contribution deadline? There is a deadline for IRA contributions each tax year. That deadline is April 15 of the year following the tax year for the contribution. For example, people wanting to make IRA contributions for tax year 2018 have until April 15, 2019 to make the deposit.
What investments should you own?
Any account, including an IRA, can hold all your savings in cash. It’s just a question of knowing whether that’s the right thing for you. If you are sure that the market will fall and you want to be absolutely sure that your account never experiences a change in price, you can put everything in cash. And, you can always change the mix of the investment you hold in your account at any time.
Do you know how soon you are able to retire?
When I work with my clients to save for retirement, we are always putting away money now, for use in the future. Sometimes the retirement future is thirty years away. Sometimes, it’s five years away. If they actually plan to consume this IRA money in the next couple years, then that’s very different from a plan to keep the money invested for use later in retirement.
I place huge emphasis on your timeline to guide our investment strategy. Specifically:
- Money saved for use 30 years from now should always be in an appropriate mix of stocks of great companies from around the world. Over a 30-year time frame, there has never been a better way to grow wealth than to invest in great companies.
- Money saved for use in the next 18 months should always be in cash to keep it safe and to allow you the flexibility of changing your mind and dip into it early if you need to.
- For money that is to be saved longer than 18 months and for shorter than 30 years, the exact mix of stocks, bonds and cash will depend on your exact goals and a lot of other factors. This might be a situation where you would benefit from some great advice from a financial planner who is your advocate and who works exclusively for you.
Sometimes, IRA decisions are an invitation to get some great advice
If you are thinking about adding to an IRA, but reluctant to do so because of concerns about the investment markets, it could be an alert from the universe that maybe you should have a talk with your financial planner. If your advisor is a fiduciary advisor – one who is always your advocate – and a fee-only advisor – one who is only paid by you – she can be an excellent resource to help you consider what is the smartest thing for you to do with your IRA money.
Don’t have a financial planner? I suggest you start by locating a CERTIFIED FINANCIAL PLANNER™ professional in your neighborhood.
CFP® professionals take a multi-faceted approach to your financial planning process that includes budgets, risk protection, retirement planning, investment management, taxes and estate planning. All these related aspects of your financial life are the foundation for a great plan to make the most your financial life.
A CFP® professional can help you create a financial plan that is driven by your goals and priorities and addresses all aspects of your financial life. With a big-picture approach, you will be better prepared to understand your options at every step along the way.
Yes, I am a CFP® professional. I’m always a fiduciary and I only work on a fee basis. And yes, I’m still taking on a few great families to be part of my financial planning practice.
If this article has you thinking about your IRA contribution, contact my office at firstname.lastname@example.org. I am always happy to meet with people who are working on their retirement plans. Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.