In the past few years, I’ve worked hard to contribute the maximum amount allowed to my Roth IRA. I have done this in spite of the fact that I have debt to pay off. Am I making the right decision? It feels like it’s the right choice for me.
What Is a Roth IRA?
In case you’re not familiar with it, the Roth IRA is a retirement plan. I am self-employed. Therefore, I don’t have a 401(k) through my work. As a result, I need to take responsibility for my own retirement planning. The Roth IRA is the most common self-employed alternative to the 401(k).
Contributing a Maximum Amount
You’re allowed to contribute a certain amount to your Roth IRA each year. Currently, I’m allowed to contribute $6000 annually. I have tried to max that amount out for the past few years. Before that, I didn’t usually contribute to my own retirement. In fact, at one point I got overwhelmed with my debt and pulled out all of the money I’d previously contributed. That was unfortunate because there’s a big penalty fee when you do that. Nevertheless, that’s what happened in the past. I’m trying to do better now. More importantly, I’m trying to do better for my future self.
My Retirement Is Important
As I’m getting older, I’m starting to see how important it is to set that money aside for myself. After all, I can’t work forever. I need to have some income in the years after I have to stop working. Therefore, in order to make my future self secure, I have to set aside that money. No one else is going to do that for me. So, I’ve started to make this a priority in my budget.
I Appreciate the Tax Benefits
As a self-employed individual, I always have to look carefully at my taxes each year. You’re allowed to offset some of the taxes that you owe when you contribute to a Roth IRA. Therefore, it benefits me at tax time each year to set aside that money. You’re allowed to set it aside during the tax year. If you didn’t max it out, you can contribute up to the maximum until April 15th of the following year and apply it to the previous year. Sometimes I do that when doing my taxes reminds me that I have the option.
However, I Pay Down Less Debt
The one big drawback is that the $6000 I’m putting towards retirement could alternatively go to pay down debt. I have a lot of debt right now. In addition to basic consumer credit card debt, I have medical debt, business loans, and student loans. A few of those have really high interest rates. I obviously want to pay them off. And yet, I take that $6000 per year and put it towards retirement instead. Is this wise?
I honestly don’t know the answer to this question. At least, I don’t know the “correct” professional advice for this situation. However, I do know that I’ve assessed the situation carefully. When it comes to my own financial psychology, I’ve determined that setting aside that retirement income makes me feel good about my money. Therefore, I think it’s the right choice for me.
- What is the Mega Backdoor Roth and Why Should You Care?
- All Aboard the Tax Rollercoaster!
- How to Check If You Can Afford to Retire