Retirement Saving Tips

Retirement Saving Tips

 

As you know, I am a firm believer that saving for retirement is essential.  The more you can save earlier in your career the better off you will be later in life.  That and the money you saved earlier in life will earn much more for you than money you save later.  The power of compounding is incredible and not something that should be ignored by any means.  But here are some more saving tips for those who are focusing on their retirement.

If you work in certain fields such as a public school teacher, healthcare worker, nonprofit employee, or other public sector jobs you have an opportunity to double your workplace savings.  In 2014, you were eligible to save up to $17,500 in your 403(b), and you can save an additional $17,500 in a 457 plan.

Now if you are over the age of 50 there are some special provisions for saving for retirement that are designed just for you.  If you are 50 or older and have a Traditional or ROTH IRA, you are allowed to save an extra $1,000 for a total of $6,500 for 2014.  In regards to work plans, those over 50 are allowed an extra $5,500 for 401(k), 403(b), and 457 plans for a total of $23,000 in 2014.

If you are self-employed, there are some additional saving opportunities for you.  This strategy will apply even if you have a regular 401(k) or similar plan at a full-time job.  If you are self-employed, you have two basic choices, and that is a solo 401(k) and Simplified Employee Pension (SEP).  You are allowed to make tax deductible contributions to both, and they then grow tax deferred until your retirement.  In a SEP account, you are allowed to save up to 20% of your net self-employment income with a limit of $52,000 in 2014.  If you are over 50, there is also a special provision for these savings tools that allow you to save up to $57,500.

If you earn more than what is allowed to make contributions to a ROTH IRA, there are some ways to navigate around these restrictions.  For single people, the maximum you are allowed to make in your adjusted gross income is $129,000 and for joint filers the maximum is $191,000.  However, there is no restrictions on making non-deductible contributions to a Traditional IRA and converting it into a ROTH IRA.  There is also no timeframe in which the funds have to be in a Traditional IRA prior to it being converted into a ROTH IRA.  So if it is done immediately there will be no further tax implications to deal with.

Just because your employer has enrolled you in the company’s 401(k) plan, chances are it is at 3% of your salary, and that is not sufficient for your retirement.  In most instances, the 3% that you are setting aside does not even begin to meet the maximums that your company will match meaning you are leaving free money on the table, and that is never good.  Also, I would recommend setting aside at least 10% of your salary in your 401(k) before the company match is considered in the equation.

There is a tax credit for low-income wage earners who save for their retirement.  For those who qualify the credit can be 10%, 20% or 50% of the contributions depending on your adjusted gross income with credit of up to $1,000 for individuals and $2,000 for joint filers.  In 2014, the income limitations are $60,000 for those who file as joint, $45,000 for head of household and $30,000 for those who file single.  Not a bad deal or incentive for those who are not high-income wage earners to save for their retirement.

A unique way to save for retirement, lower your current taxes and pay for healthcare costs later is a health savings account (HSA).  This is available to people who have high deductible health care plans and provides a triple tax advantage as mentioned earlier.  The contributions are tex deductable, grow tax deferred and if used for medical expenses are tax-free.  Now it does not get much better than that when saving for retirement as we all know medical expenses will play some role when we reach an advanced age.  And best of all you can use it while you are working on qualified medical bills provided you keep good records.

And finally where you retire can also be an active retirement tool.  Seven states have no income tax at all; many do not tax Social Security or pension benefits.  While it does not help you while you are working and may be an added expense in retirement to move for many it is worth it when they do retire to ensure they pay as little as they have to in taxes.

For more information on saving for retirement or if you have any other questions feel free to contact me.

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