Financial Advisors in Raleigh NC: Boost Your Retirement Savings
Whether your retirement date is fast approaching or you still have a few years to go, it’s important to take steps to boost your nest egg so you’re better prepared to meet your goals. Consider the following five strategies for maximizing your savings potential.
1. Maximize tax-advantaged contributions
Get the most out of your savings by maximizing tax-deferred contributions to your IRAs and 401(k) plans. In 2023, you and your employer can contribute up to a total of $66,000 to your traditional 401(k). If you don’t have a 401(k) or want to save more, you can contribute $6,500 to an IRA.
2. Take advantage of catch-up contributions
If you are over age 50, you can exceed the standard annual contribution limits of your IRA and 401(k) accounts. This allows investors close to retirement to supercharge their savings, putting away more tax-deferred funds for the future. In 2023, you can use catch-up contributions to put away an additional $1,000 in your IRA and an additional $7,500 in your 401(k).
3. Explore your HSA investment options
If you have a high-deductible insurance plan you can use an HSA to set aside pre-tax funds to spend tax-free on deductibles, co-pays, and other qualified medical expenses either now or in the future. If you’re single, you can deposit up to $3,850 each year into your HSA, and up to $7,750 for family coverage for your spouse and/or children.
HSA account holders can invest the funds in stocks, bonds, mutual funds, or ETFs, but only a small fraction take advantage of this option. According to a study by the Employee Benefit Research Institute, only 9% of HSA account holders currently invest their funds—everyone else is keeping their HSAs in cash.
Investing allows your HSA funds to potentially grow over time. That can provide extra funds for health care costs now, and, after age 65, you can make taxable withdrawals from your HSA for any reason without penalty. Explore your HSA investment options with your financial advisor to maximize the potential of your HSA funds after you’re no longer working.
4. Consider a Roth conversion
You may be able to roll over funds from your traditional 401(k) account to a Roth IRA to provide a bucket of tax-free income you can draw from when you retire. Contributions to 401(k)s are made pre-tax, so when you roll the funds over to a Roth, you’ll have to pay taxes on them. From there, they can grow tax-free, and you won’t pay taxes on them when you make withdrawals.
This maneuver can be tricky. In part, that’s because Roth IRA contributions are limited by how much you make. You can only contribute the maximum if your modified adjusted gross income (MAGI) is less than $138,000 ($218,000 if you’re married filing jointly). Beyond this income threshold, your contribution limit is decreased until it phases out entirely at $153,000 for single filers, or $228,000 for joint filers.
5. Assess your annuity options
If you still have retirement money to invest after you’ve maximized your 401(k) and IRA options, an annuity may be suitable. An annuity is an insurance product that you can purchase with a lump sum of cash or a series of payments. Depending on the specific annuity, you may be able to access market upside while also guaranteeing a level of income in retirement.
Bottom Line
You have a range of options for maximizing your savings and retirement income. We realize everyone’s situation is unique, so if you have any questions or concerns about your situation, please don’t hesitate to reach out.
Sources:
https://www.irs.gov/newsroom/401k-limit-increases-to-22500-for-2023-ira-limit-rises-to-6500
https://www.irs.gov/publications/p969
https://www.irs.gov/publications/p969
https://www.irs.gov/retirement-plans/amount-of-roth-ira-contributions-that-you-can-make-for-2023
Disclosures:
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This material is provided as a courtesy and for educational purposes only. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.
These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. Neither the named Representative nor Advisory Services Network, LLC gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.
Variable Annuity (*if IAR is also a registered rep with a Broker/Dealer, variable annuity advertising may need to be filed with FINRA through their Broker/Dealer)
Variable annuities are offered only by prospectus. Carefully consider the investment objectives, risks, charges, and expenses of variable annuities before investing. This and other information is contained in each fund’s prospectus, which can be obtained from your investment professional and should be read carefully before investing. Guarantees are based upon the claims paying ability of the issuer.
Variable annuities are long-term, tax-deferred investments designed for retirement, involve investment risks, and may lose value. Earnings are taxable as ordinary income when distributed. Individuals may be subject to a 10% additional tax for withdrawals before age 59† unless an exception to the tax is met.
Add-on benefits are available for an extra charge in addition to the ongoing fees and expenses of the annuity and may be subject to conditions and limitations. There is no guarantee that an annuity with an add-on living benefit will provide sufficient supplemental retirement income.
Indexed Annuity
An indexed annuity is for retirement or other long-term financial needs. It is intended for a person who has sufficient cash or other liquid assets for living expenses and other unexpected emergencies, such as medical expenses. Guarantees provided by annuities are subject to the financial strength of the issuing company and not guaranteed by any bank or the FDIC.
Indexed annuities do not directly participate in any stock or equity investment. Clients who purchase indexed annuities are not directly investing in the financial market. Market indices may not include dividends paid on the underlying stocks and therefore may not reflect the total return of the underlying stocks; neither a market index nor any indexed annuity is comparable to a direct investment in the financial markets.