Know Your Finances: April 16 is IRA deadline

It’s hard to believe that we already have one month under
our belts in this new year! The market, as measured by the S&P 500, is up
4.5 percent for the month of January. Will it continue or will it fade? It’s
impossible to know the future of course, but we can reflect on what risks loom
large and what is driving market strength.

Economic recovery is not a slam dunk. Europe is still a
mess. And the mess is big and will take years to clean up. The weak countries
that borrowed to the hilt, like Greece, Italy, Spain, Ireland, must reduce
their debt loads in order to stay in the Eurozone. And that can’t happen overnight, which means it will take
some time before the Eurozone is stable again. Negotiations to restructure
Greece’s outstanding debt are still not resolved, though getting closer, and
bankruptcy remains a possibility. Europe in general is likely to be in
recession for 2012 and 2013. This kind of instability and slowdown has to
impact our economy too. Nonetheless, though we do a tremendous amount of trade
with Europe, we are a relatively closed economy and trade with Europe is not
our primary engine of growth.

I think economic recovery, however slow and gradual, is more
likely in the cards than another recession. We are seeing improvements in jobs,
bank lending, consumer confidence and spending, and even in housing. Plus, many strong companies can afford
to pay out higher dividends to shareholders than treasury bonds pay interest to
bondholders. Stock prices are not outrageously expensive across the board.

But the point of this month’s article is not to dwell on
economic Bull versus Bear arguments, but rather to bring up an important
seasonable reminder.

The deadline to contribute to Traditional IRA and Roth IRA
accounts for the 2011 tax year is Monday, April 16. If you can and should
contribute to these tax-advantaged accounts and you don’t, it’s like throwing
money into the trash bin.

For example, if you are over 50 years old and have $6,000 in
a personal account that can be moved over to an IRA account, based on an apples
to apples growth assumption of a mere 5 percent total return per year, that
$6,000 in your taxable account will grow to about $7,000 while the
tax-advantaged account will grow to about $9,800. That’s 40 percent more money
for the tax-advantaged account! Imagine if you contribute $6,000 each year for
the next 10 years. Your taxable account will grow to $65,000 while your IRA
will grow by 22 percent more to $79,000!

I took into account in my analysis that a portion of your
taxable account is taxed for both capital gains and dividends each year. Feel
free to contact me for a detailed explanation of my assumptions.

Even though you will have to take money out of your
Traditional IRA once you become 70.5 years old, which is taxed at your ordinary
income tax rate, it usually still makes sense to have the money grow in the
tax-deferred IRA. Of course, there are exceptions to this. People close to 70.5
won’t have enough time to reap the rewards of tax-deferred growth and other
people may already have too huge a pot of money in tax-deferred accounts
relative to their taxable accounts. But generally, it is a good strategy for
many people, especially if you can apply the contribution as a tax deduction.
And, for those people who qualify for making contributions to a Roth IRA, the
rewards are even larger since you won’t be taxed on the money when you withdraw

Everyone’s financial situation is unique. Feel free to
contact me if you have questions about whether you can or should contribute to
either a traditional or Roth IRA before April 16. I am happy to help.

* Ellen Le is the
founder and president of Ascend Investment Management (
She has been a financial planner and investment adviser for more than 20 years.

I look forward to receiving your
questions about anything related to investments, retirement planning, or the
economy. Send them to: and write “Chadds Ford Live” in
the subject line.

About Ellen Le

Ellen is the Founder and President of Ascend Investment Management. She was born in Philadelphia and has lived in the Delaware Valley for most of her life. When she is not researching investments and managing portfolios, she pursues her interests in tennis, bridge, hiking and art. Beginning her investment career in 1981 as a stockbroker at E.F. Hutton and Co., Ellen now has over 20 years of investment management experience. Prior to founding Ascend in 2006, she managed high net worth assets for many years at Bank of America, Mellon Bank, and most recently at Davidson Capital Management. At Davidson Capital Management, Ellen served as a Senior Vice President and Senior Portfolio Manager of the firm. She managed assets for more than 50 family relationships and was a core member of the firm’s Investment Committee.Ellen earned a BA in History from Brown University and a MBA in Finance & Investments from The George Washington University. She is a member in good standing of the Chartered Financial Analyst (CFA) Institute, which is a global organization dedicated to setting a high ethical standard for the investment profession. Her professional memberships include the Delaware County Estate Planning Council, Women Enhancing Business (WEB), and the Chadds Ford Business Association. She is a docent with the Delaware Art Museum and an active volunteer with the Brown University Alumni Association.



One Response to “Know Your Finances: April 16 is IRA deadline”

  1. jeanne-marie says:

    Very helpful. Thank you!

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