Planning for retirement by implementing appropriate retirement savings strategies can help boost your retirement savings. It’s essential to realize that saving for retirement happens over time through varying market performance cycles and specific actions.
Here are seven steps that could help you boost your retirement savings in the New Year:
#1- Get your employer’s matching retirement savings dollars
Contribute enough to your employer’s plan to receive a matching contribution (commonly a 2-4% match). You may have the option to contribute to pre-tax and after-tax retirement savings accounts and choose where to apply your employer’s match. Ensure you’re not throwing away ‘free money’ by contributing less than the minimum required by checking your contribution amount and employer retirement plan documents.
#2- Maximize your retirement savings contributions
If you’re over 50, the IRS allows you to contribute more through catch-up provisions for your pre-tax and after-tax retirement savings accounts. Check with your financial professional for the New Year’s Roth IRA, IRA, 401(k), 403(b), and 457 plan contribution limits if you intend to save more by maxing out your contribution limits.
#3- Fund a Roth IRA
Roth IRAs fund with after-tax contributions, so you pay taxes upfront. When you take distributions, both the contribution and accumulation are tax-free. However, the IRS ‘five-year rule’ says you cannot withdraw earnings tax-free or without a 10% penalty before age 59 1/2 or until at least five years since you made your first contribution to the account.
Anyone can open a Roth IRA at any age, as long as they have income. But income limits apply and can vary from year to year. Reach out to your financial and tax professionals to determine if you are eligible to contribute and the contribution limits for this year.
#4- Assess your portfolio’s risk and allocations
Meet with your financial professional to determine if your risk tolerance and portfolio allocations are appropriate. Your financial professional will assess your timeline, performance, how inflation may impact your retirement savings, and other factors as they work towards evaluating your portfolio.
#5- Consider other retirement savings strategies
Different strategies that you can contribute towards now can help fund your retirement income later, such as:
Fixed-indexed annuities are contracts purchased directly from an insurance company or a financial institution. Annuities are purchased with a one-time or series of payments over time. If you have retirement savings plans from past employers, you can use the value to buy an annuity. Some features of annuities include:
- Provide income for life
- Protect against market risk- the initial investment and accumulation are protected when the market declines.
- Annuities offer tax efficiency while they grow.
- Lock in gains based on market performance
Life Insurance can be used for retirement income when you borrow against the policy’s cash value (without tax consequences) to supplement your retirement. You will still have some remaining death benefits if you don’t use all of the cash value or surrender the policy.
Policy loans and withdrawals will reduce available cash values and death benefits, and may cause the policy to lapse or affect any guarantees against lapse. Additional premium payments may be required to keep the policy in force. In the event of a lapse, outstanding policy loans in excess of the unrecovered cost basis will be subject to ordinary income tax. Withdrawals are generally income tax-free unless the withdrawal amount exceeds the premium paid. Tax laws are subject to change. Clients should consult their tax professionals.
Talk to your insurance professional to understand the details of using life insurance for retirement funding. How it may or may not be an option, depending on your unique situation.
#6- Engage in tax planning
Part of your retirement savings should be in tax-sheltered accounts. Discuss your portfolio and each investment strategy with your financial and tax professionals. In order to ensure you are paying the appropriate amount of taxes. They can also help you prepare for taxes in retirement when you start taking distributions from your retirement savings.
#7- Have a financial plan completed
Meet your financial professional for a financial planning meeting and have a financial plan completed or updated. A financial plan is crucial. It provides a roadmap to determine if your risk tolerance, asset allocations, and timeline until retirement are still on target. A financial plan can help you focus on boosting your retirement savings in the New Year.
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An annuity is intended to be a long-term, tax-deferred retirement vehicle. Earnings are taxable as ordinary income when distributed, and if withdrawn before age 59½, may be subject to a 10% federal tax penalty. If the annuity will fund an IRA or other tax qualified plan, the tax deferral feature offers no additional value. Qualified distributions from a Roth IRA are generally excluded from gross income, but taxes and penalties may apply to non-qualified distributions. Consult a tax advisor for specific information.
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