| NEW YORK
NEW YORK Feb 26 Don't think of the next seven
weeks as a grim time of tax-season drudgery; think of them as
your special, limited-time offer to enrich your future.
Most tax-favored retirement and health savings programs give
you until April 15, 2014 to make contributions that count
against your 2013 tax year. That's such a significant benefit
that it would be foolish to ignore it.
For example, $5,500 (the maximum annual contribution for an
individual retirement account; folks over 50 can add an extra
$1,000) invested for a 7.5-percent average annual return would
grow to $24,535 in 20 years, according to a Bankrate.com
calculator. A 30 year old who puts $5,500 away today at that
rate and doesn't touch it until she is 70 would have $109,444 -
just from that one contribution.
So, beg, borrow and scrape together one more 2013
contribution if you haven't done so already - saving now is a
The much more difficult "brainer" is this: Which account do
you feed first?
Most workers can choose either between a traditional
tax-deferred IRA (contributions are made with pre-tax money and,
along with earnings, taxed as income when withdrawn) and a Roth
IRA (contributions are made with after-tax money, but all
withdrawals are income-tax free if made in retirement).
Also competing for their dollars are health care savings
accounts (with an April 15 deadline as well).
Here's how to figure out where to send your precious dollars
FEED YOUR HEALTHCARE SAVINGS ACCOUNT (HSA)
This advice may surprise some retirement-focused experts,
but it's the best first choice of where to stash cash.
These privately held accounts are meant to offset the
expenses consumers face when they have high deductible health
care plans and they come with a benefit you can't find anywhere
else: The contributions are tax free and the money, when it
comes out, is tax free too.
Furthermore, there's no law that says you have to spend your
HSA money annually. You can save it for retirement and use it to
offset the post-retirement healthcare costs that everyone keeps
warning you will be hefty.
You can even save your receipts now and then pull money out
of that account after you retire to reimburse yourself for
healthcare money you spent in earlier years.
ROTH, ROTH, ROTH
Financial pros say that in almost every case, you cannot top
the advantages of a Roth IRA.
"Hands down, it's a no brainer," says Ed Slott, an expert on
Over time, the money earned within the Roth (and
withdrawable tax free) dwarfs the amount of the initial
A 25-year old who faces the same income tax rate in
retirement as during his working years would end up with 20
percent more money to spend in retirement if he opts for a Roth
IRA instead of a traditional IRA, according to new research from
T. Rowe Price. (The research assumed a 7-percent return
pre-retirement and a 6-percent return in a 30-year retirement.)
That supports the view that "Roth is better if tax rates go
up in retirement, and if tax rates stay the same in retirement,
and even for most people for whom tax rates will go down in
retirement," says Stuart Ritter, vice president of T. Rowe Price
Investment Services and a financial planner.
Furthermore, accountholders are allowed to withdraw their
contributions from a Roth at almost any time and for any reason
without any tax consequence, says Slott.
"That removes all the risk."
A TRADITIONAL IRA
There are a few reasons why you might choose a traditional
tax-deferred IRA instead of a Roth.
If you earn more than $127,000 as a single person or
$188,000 as a couple filing jointly, you aren't allowed to
contribute to a Roth IRA. And, if you're covered by a retirement
plan at work and earn that much, you won't be able to deduct
your contribution from your 2013 taxes, either.
But you will be able to accumulate money in your traditional
IRA and eventually convert it to Roth status, paying taxes on
the account's earnings when you do convert it. It's like a back
door to a Roth, says Slott.
There's one other category of saver who might be better off
with the traditional IRA, according to T. Rowe Price's Ritter.
That's the older worker who expects to retire soon and who
expects her post-retirement tax rate to be significantly lower
in retirement. The combination of fewer years of compounding and
the fact that money coming out will be taxed at a lower rate
than it would be going in negates the Roth advantage in those
There's another point of research on which most retirement
savings experts agree: The earlier you save, the better.
That means that instead of waiting until March 2015 to make
your 2014 contribution, you should do it now.
If you have the cash, you can make both your 2013 and 2014
contributions now; that would be $11,000 if you're under 50 and
$13,000 if you're over 50.
If that's too big a check for you to write right now, set up
an automatic contribution so that your 2014 contribution is done
by the end of the year, instead of waiting a whole year to make
a lump-sum payment.
Over ten years, that monthly contribution will put more
retirement money in your pocket 98 percent of the time, says