You already know the importance of saving for retirement. But while simply opening an IRA or increasing your 401(k) contributions make for a good start, I’m here to tell you that you can do even better! There are plenty of insider retirement savings tips that can help you double down on this important task, and deliver you to your financial goals quickly and easily.
Below, find six of our favorite retirement savings secrets, whether you’re stashing cash in an IRA or reaping the benefits of a company-sponsored plan. (Or, you know, both – when it comes to retirement savings, the more the merrier!)
Top-Secret IRA Moves
An IRA is a great way to grow your nest egg and then store that excess for safekeeping, whether you’re covered at work or not.
But if you’re savvy, your options go way beyond just choosing between Roth and traditional. Here are some lucrative IRA secrets you may not have considered yet.
1. Spousal IRA Contributions
Usually, you have to have earned income to contribute to an IRA. But a spousal IRA lets couples double up on IRA savings, even if only one spouse works for pay.
Let’s say you work full time and your spouse stays home to take care of the kids – which definitely counts as a job, even though it doesn’t earn income. In 2023, you can contribute $6,500 to an IRA…. and yes, so can your spouse!
That increases your total annual IRA contribution cap to $13,000, or $15,000 if you’re both over 50 (which means you get an extra $1,000 in catch-up contributions). Don’t miss out on this easy opportunity to literally double your retirement savings every year.
2. Backdoor Roth IRAs
A Roth IRA offers all the same growth potential of a traditional IRA with some attractive extra benefits – namely tax-free withdrawals and immunity from those pesky required minimum distributions that kick in at age 70.5. But Roths have strict income eligibility rules, and contributing to one is difficult if your family’s annual earnings are around $200,000.
There is a solution, however: you can make an indirect “backdoor Roth contribution” by making a non-deductible contribution to a traditional IRA and later converting it to a Roth. It may seem like a loophole, but it’s actually totally legit, so long as you play by the IRS’s rules and specifications.
3. Roth IRA Conversions
“A tax delayed may never be paid,” they say… unless it’s a one-time opportunity, like a Roth conversion. Another effective method for funding a Roth IRA, a Roth conversion moves money from a traditional IRA to a Roth IRA.
However, the funds you transfer do count as taxable income during the year of the conversion, so be ready to pay Uncle Sam, as you could have a large tax bill when you complete the conversion.
Ways to Hack Your Company-Sponsored Retirement Plan
If you’re lucky enough to have access to a 401(k) – or better yet, a pension – you’ll definitely want to take advantage of it. And we don’t just mean opting in! Here are some company-sponsored retirement plan secrets.
4. In-Service Retirement Plan Rollovers
Some retirement plans feature a so-called “in-service” rollover. This option allows a large percentage of your 401(k) to be rolled over into an IRA while continuing to participate in the company-sponsored plan. In-service withdrawals can be made once you reach age 59.5, and having both kinds of accounts may give you more control over the allocation of your assets.
Since different plans and companies have different rules, this strategy may not be an option for you – but it’s well worth asking your 401(k) plan’s administrator if it is. You’ll gain more control over your retirement money in a variety of ways, which we’re happy to outline for you in person.
5. Lump-sum Pension Rollovers
Pensions are about as easy to find as unicorns these days – and it’s easy to see why. Pensions are downright expensive for employers, and as a result, many existing plans face billions in funding gaps.
If you work in such an environment, it may make sense to take the lump sum while you can, since your monthly pension payments might not be reliable in the long run.
Here are a few more reasons the lump sum option might be a better idea than you think:
- Monthly pension payments typically don’t increase over time, even to account for inflation.
- If you’re planning to leave some money to your children and grandchildren, the lump sum provides an excellent opportunity to do so.
- The lump sum allows more flexibility in timing distributions for better tax planning.
- You’ll always have access to all of your money if you need or want it.
- If your company under-funded the pension, your pension benefits might be reduced. So take it out while you’re still afloat!
One More Retirement Vehicle You May Not Have Considered
Not every cent of your retirement income has to come out of a dedicated retirement plan. In fact, there’s one surprising tax-advantaged investment vehicle that can be a great way to boost your retirement savings.
6. Health Savings Accounts (HSAs)
If you don’t have complex medical issues, the tax benefits of a health savings account, or HSA, are tremendous. To start, your contribution is tax-deductible, and you can invest the funds like you would in an IRA. The money grows tax-free, and so long as it’s used for qualified medical expenses, the withdrawals are tax-free, too.
We often suggest HSAs to our clients – you can basically treat it like a retirement vehicle if you have the means to pay for medical expenses out of pocket. (Do keep in mind that it must be in conjunction with an HSA eligible plan.)
Retire with Confidence
Ready to implement some of the secrets we’ve just learned about? Or need help with some other aspect of financial planning? At Fireside Financial we’re here to help you get your financial house in order – and keep in that way. We provide custom-crafted, ongoing guidance in a friendly and professional setting.
So to learn more about how to achieve your retirement goals and live the life you deserve, reach out to us directly for a free consultation. We’re eager to help you find the tools you need to control your money with confidence. After all, you’ve earned it.
