Welcome! You are listening to Tom Copeland’s Taking Care of Business. I’m Tom Copeland, and I’ve been a trainer, author and advocate for the business of child care for over 30 years.
This show is about the business side of child care and is for family child care providers and those who work in child care centers.
Today I’m going to talk about The Importance of an Individual Retirement Account (IRA)
Let’s start with a pop quiz.
How comfortable are you that you are saving enough for your retirement?
When I ask this during my training workshops, most family child care providers and workers in child care centers, answer that they are not at all comfortable.
You know that you probably aren’t saving enough for your retirement. There are many reasons why. You don’t earn enough. You are spending too much today. You don’t know how to save for retirement. And so on.
There’s usually always a good excuse why people don’t save more money. But, the main reason is because people make saving money their lowest financial priority. And this is a choice.
In other words, people could choose to make saving money a much higher priority, but they don’t. People could spend less if they wanted to on eating out or going to the movies, or buying shoes, or buying any item that is not a necessity.
When you are saving money for your retirement you should be taking advantage of the significant tax benefits offered through IRAs.
By investing your money through an IRA, you can claim a tax deduction on your contributions. You won’t pay any taxes on the interest your contribution earns each year. Instead, when you take your money out after age 59 ½, you will pay tax on your contributions and the interest it earned.
This tax deduction, and the fact that you will owe no taxes on your investments during the many years you are saving, will have a significant impact on how large your retirement nest egg will be.
Let’s say you invested $5,000 a year and your money earned 8% per year. If you invested this money through an IRA, you would have about $167,000 after 20 years. This would be 28% more money after taxes than if you invested your money outside an IRA. That’s a big difference!
There is one IRA option that works differently than all the others. This is the Roth IRA. With a Roth IRA your contributions are not tax deductible. But when you take money out of a Roth IRA you will not pay taxes on your contributions or the interest it earned over the years. In the long run, a Roth IRA is probably a better choice than other IRAs.
Other than a Roth IRA, there are a number of different IRA options you may be eligible for. If you are a family child care provider you may also be able to contribute to a Traditional IRA, SIMPLE IRA, or SEP IRA.
If you work in a child care center your program may offer a retirement plan or you may be eligible to contribute to a Traditional or Roth IRA.
The deadline for making a contribution to your 2013 IRA is April 15, 2014. It’s also not too early to start making contributions to you 2014 IRA. The earlier in the year you save money, the more you will have in retirement.
Don’t let the tremendous tax savings available with IRAs pass you by. Start by saving a small amount of money each month, even if it’s only $5 a day.
If you saved $5 a day for 5 days a week you would have $1,250 at the end of the year. If you invested this in an IRA that earned 8% each year, you would have $19,127 at the end of just ten years.
It’s never too late to save money. If you saved $10 a day at age 52 and earned 8% a year in an IRA, you would have $294,000 by the time you reached age 70.
Choose to save. You can do it!
For more information about saving money and retirement planning, visit my blog at www.tomcopelandblog.com. There I’ve posted hundreds of articles and other resources to help you succeed as a business. I’ve also written a book, Family Child Care Money Management & Retirement Guide, available from Redleaf Press (www.redleafpress.org).
Thanks for listening. This is Tom Copeland hoping you will listen in for my next broadcast at the Child Care Bar and Grill.
Tom Copeland – www.tomcopelandblog.com