Financial Tips

IRA Contributions Deadline Extended to May 17, 2021!

The Internal Revenue Service recently announced that individuals have until May 17, 2021 to meet certain deadlines that would normally fall on April 15, such as making IRA contributions and filing certain claims for refund. So, it’s not too late to open an IRA and/or make a contribution to help manage your tax exposure.

When it comes to IRAs, you have a couple of options and opportunities, each coming with different tax benefits and intended uses. There are also contribution limits based on age and timing restrictions. To help you decide which type of IRA is right for you, and so you can make an informed decision that may help you reduce your tax burden this year, here is some insight into Traditional and Roth IRAs.

Traditional IRA

A Traditional IRA is a type of retirement account in which individuals can make pre-tax contributions and the investments in the account grow tax-deferred. In retirement, the owner pays income tax on withdrawals from a Traditional IRA. The maximum contribution amount is $6,000 per year for those up to 50 years of age; $7,000 for those over 50 and these contributions can be made up to the age 70 ½. At the age of 72, there is a required minimum distribution on Traditional IRAs, which is determined by an IRS formula.

The two big benefit of a Traditional IRA are:

1. Since Traditional IRAs provide an opportunity for tax-deferred earnings (earnings are taxed when withdrawn), they can be particularly helpful to those who anticipate being in a lower tax rate in retirement.
2. Traditional IRA contributions may be tax deductible, reducing tax burdens for contributors.

Roth IRA

A Roth IRA is an individual retirement account that offers tax-free growth and tax-free withdrawals in retirement. Roth IRA rules dictate that as long as you have owned your account for 5 years and you’re age 59 ½ or older, you can withdraw your money when you want to and won’t owe any federal taxes. One thing to consider is that with Roth IRAs, you are contributing post-tax money, which impacts your current income. The maximum contribution amount is $6,000 per year for those up to 50 years of age; $7,000 for those over 50.

The benefits of a Roth IRA are:

1. Roth IRAs offer tax-free earnings and withdrawals.
2. Regular contributions can be withdrawn anytime, tax-free and penalty free.
3. Unlike the Traditional IRAs, there are no mandatory withdrawals at age 72.

Wheelhouse Credit Union offers both types of IRAs, each with the option to be opened as a Daily Savings Account, a Certificate or both. There is no monthly service charge for either type and they are federally insured by NCUA up to $250,000. We recommend checking with your professional tax advisor for direction and answers to questions specific to your personal financial situation.

Note: Although a normal/qualified distribution may not have an IRS penalty, if an IRA is set up as a Certificate and a distribution is taken during the Certificate term, then an early withdrawal penalty will apply.

Managing Your Money to Benefit Your Well-being

This past year has caused many of us to re-evaluate our goals, our everyday practices, our intentions and our overall health – living through a pandemic will do this. If we’ve learned anything through COVID-19, we have learned that taking care of ourselves in all aspects of our life is crucial to our overall health. And, keeping our health in check is important insurance to fight off illnesses of any kind, including the Coronavirus.

As a result, many of us are exercising more, reading more, organizing more and spending more time with our immediate family. All of these practices are essential to good health, but many of us may be missing one very important area that needs attention…managing our finances.

Since money is central to everyday activities, approaching our finances in a way that benefits our well-being can add a sense of order and create a safe foundation in our life. Setting aside time each week to focus on money management will reduce stress, create stability and allow you to make informed decisions. However, before we focus on these weekly activities, we recommend taking the following steps:

1. Make a list of all your deposit accounts, the interest you are earning on each and where they are located.
2. Make a list of all of your loans (including credit cards), the balance owed, your interest rate and where they are located.
3. Create a list of all of your investment accounts and the balance in each.
4. Document your net monthly income and make a list of your monthly expenses. Subtract your expenses from your income to equate your disposable income.

Once you have a complete picture, create a schedule to review and manage your finances weekly. For example: 30 minutes every Saturday afternoon. We recommend covering the following during your weekly Financial Fitness Sessions:

1. Pay your bills and put money into your savings account, even if it is only $5 every week.
2. Compare your deposit rates to other financial institutions and move money, if appropriate.
3. Compare your loan rates to other financial institutions and refinance to lower rates, ultimately reducing your monthly expenses.
4. Create a path to pay off your credit cards, if you do not already do so monthly. Cash in any reward points you have for credit.
5. Take a look at your expenses the previous week and make a plan on what to spend in these specific areas during the next week. Ask yourself:
1. How much did I spend on going out to eat last week? How much do I plan on spending next week?
2. How much did I spend on groceries last week? Did I eat all of them? Can I spend less the next week, etc.?
3. How much money did I put into my savings account last week? How much can I put in next week? What do I need to do to increase my savings?

Regardless of what you accomplish each week, we are positive that reviewing and managing your finances weekly will reduce your stress and benefit your well-being.

5 Smart Ways to Use Your Stimulus Check

If you’re receiving a stimulus check as part of the most recent COVID-19 Relief Package, it’s more important than ever to consider the coming months and make sure you’re using the money wisely. Let our insightful infographic help guide you through your choices as you prioritize how to spend your funds. Access, 5 Smart Ways to Use Your Stimulus Check, for a few strategic tips. If you have questions or would like more details, reach out to a financial professional located at our credit union.