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The 2012 tax filing deadline is upon us, and if you haven't filed yet, don't worry -- you're not alone. H&R Block (HRB) estimates that on average, Americans are about two weeks behind last year's filing pace, with about 60 million yet to file as of the beginning of March.

A big part of the delay is driven by the last-minute tax law changes and new reporting requirements that were so complex that even the IRS was forced to delay its typical starting date for accepting returns.

If you've got all the paperwork and are just dreading the effort or the bill you might have to pay, here's something that might motivate you to get moving: There's a last-minute tax move you can make for 2012 that could potentially be worth over $100,000.

The move that can be worth so much? It's simple: Fund your IRA for 2012.
And exactly how do we come up with the tasty $100,000 carrot to get you to act? Like this: The money you contribute to an IRA (traditional or Roth) grows tax deferred. And if the IRA you fund is a Roth IRA, that growth may even end up being completely tax free.

People under age 50 can contribute up to $5,000 for 2012. If that $5,000 contribution compounds at 8 percent annually for the next 40 years, your savvy tax move you make in the next month winds up being worth $108,623.

That's not a bad haul for a one-time investment, but you've got to get moving.

While the IRS will automatically let you extend the deadline to file your 2012 taxes , the window slams shut on 2012 IRA contributions after April 15. In short, filing extensions do not apply to IRA contributions.

What If You Don't?

Of course, there's nothing forcing you to contribute to your IRA. If you can't come up with the cash or otherwise choose to not contribute, that's fine. But understand what you miss out on:
  • Tax-deferred compounding: You can still invest money outside of your IRA, but you'll likely owe taxes on dividends and capital gains on the returns that money makes, even years before you need to spend it.
  • Creditor protection: Many states shield some or all of your IRA assets from creditors, protecting that money from being seized to satisfy most common debts. Money in an ordinary brokerage account does not enjoy that kind of protection.
  • College financial aid: Money held in an IRA is not counted as an asset for calculating a family's expected financial contribution when calculating federal financial aid for college. Investments in ordinary brokerage accounts reduce the amount of aid a student can receive, whether those investments are held by the student or that student's parents.
  • Penalty enforced retirement focus: With few exceptions, tapping your IRA prior to retirement is a very expensive proposition. Most early withdrawals are subject to being taxed at your marginal income tax rate plus a 10 percent penalty for taking the money out early. If you've ever been tempted to spend a chunk of money just because it's there, that penalty can help you avoid that temptation, giving your cash the opportunity to truly compound for decades on your behalf.

There's Always Next Year (or Is There?)

If you don't fund your 2012 IRA now, of course you can always "wait until next year." Of course, then you'll miss out on the benefits of starting the all-powerful compounding clock right now. Plus, unless you make the commitment to yourself to fund your plan, you may well wind up in the same situation next year, too.

If you wait long enough, the opportunity to invest a little now and let compounding turn it into a comfortable retirement will pass you by. And that would truly be a tragedy.

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9 Comments

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albatroll

Where are you going to get 8% interest? The article is misleading at best.

April 13 2013 at 5:19 PM Report abuse rate up rate down Reply
HonknDodge

That's a mighty big IF. compounds at 8% and for forty years.

April 13 2013 at 7:19 AM Report abuse rate up rate down Reply
YourFtr

Obama might need to seize your 401K and/or IRAs money in order to bail out the federal government; just like FDR did in 1933. FDR also took any Gold you might have.
So your mattress and/or hidden hard assets might be better; at least until the national debt is brought under control.

April 11 2013 at 12:09 PM Report abuse rate up rate down Reply
1 reply to YourFtr's comment
teebeebad63

Exactly, your better off saving money in a credit union, the seize is getting closer.

April 11 2013 at 1:44 PM Report abuse rate up rate down Reply
jscarb5959

8% a year for 40 years? Yea right!...........Are you smoking crack?

April 11 2013 at 9:05 AM Report abuse rate up rate down Reply
drex88

A better example could of been $5000 a year for 40 years at 8% would be over $1.5 Million. VZ,T,PM,MO all have great track records and you can reinvest the dividends.
Pick up a book read it and figure it out.

March 20 2013 at 9:19 PM Report abuse rate up rate down Reply
1 reply to drex88's comment
Hi

Grammar police! It's 'could have been' not 'could of been'. You will sound smarter using proper grammar.

April 13 2013 at 12:55 PM Report abuse rate up rate down Reply
rbearland

You got that right. And don't you just hate all those phoney looking articles attached which are just bs commercials which capture your address and send you junk mailings? It's AWFUL.

March 20 2013 at 7:27 PM Report abuse rate up rate down Reply
Larry

" If your IRA contribution compounds at 8% annually". The writer of this article is dreaming.

March 20 2013 at 1:35 PM Report abuse +1 rate up rate down Reply