Last week we talked about why you should participate in your 401(k) plan. What can you do if you don’t have access to a 401(k) plan? The answer is an Individual Retirement Arrangement (IRA). Read on for three reasons why you should contribute to one if you don’t have access to a 401(k) account.

You want to reduce your taxable income.

As long as your earned income is greater than $5,500, you can contribute $5,500 to an IRA each year and your taxable income will be reduced by the same amount. If you are age 50 or older, you can contribute an extra $1,000 for a total contribution each year of $6,500.

If your tax rate is 15%, that $5,500 contribution will increase your federal tax refund by $825.

Your non-working spouse would like to contribute to an IRA.

Generally, you must have earned income to be eligible to contribute to an IRA. However, a non-working spouse is eligible to contribute to one as long as the working spouse has enough earned income to cover the total of the contribution to both IRAs. Thus, a married couple where one spouse stays home can each contribute $5,500 to their individual IRA. With a 15% tax rate, the $11,000 contribution will increase the federal tax refund by $1,650.

The contributions and the earnings in your IRA are protected in bankruptcy.

IRAs have federal protection from bankruptcy proceedings up to a cap of more than $1.2 million. If you have some funds in your IRA that were rolled over from your 401(k) plan, those funds are also protected.

Do you have other questions about retirement accounts? Send us your questions and we’ll do our best to answer them. [email protected]

Judith Ackland has more than 26 years of experience in accountancy and financial planning, including seventeen years as a CFO of a diverse business. She started Crystal Financial in 2010 to help a wide array of individuals, families, and business owners better understand their finances and how good financial management could help them achieve their goals. Judith has an MA in Professional Accountancy from the University of Nebraska at Lincoln as well as a Certified Public Accountant Certificate and a Certified Financial Planner designation.

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