No matter what age you are, saving money for retirement should be one of your primary financial goals. These six tips can help you plan for your retirement.
1. Take Advantage of Your Company 401(k) or 403(b) Match
If your employer offers a matching contribution for your 401(k) or 403(b) account, contribute at least as much as the highest amount your employer will match. Failing to do so is like turning down free money. The earlier you can reach the maximum allowable contribution to your retirement accounts, the better off you will be because your money will have more time to grow if you start investing early in your career.
2. File for the IRS Retirement Savings Credit
Lower or mid-income earners may be eligible to file for a tax credit for as much as 50% of their retirement plan contributions. The income limits to qualify in 2021 are $66,000 for a married couple filing jointly, $49,500 for single heads of household, and $33,000 for married people not filing jointly. $2,000 is the maximum credit for married couples filing jointly and $1,000 for single taxpayers.
3. Take Advantage of Double Contributions
Some educators, public sector employees, health care workers, and nonprofit employees are eligible to contribute double the normal limits to their retirement accounts. Taking advantage of this opportunity can save those who qualify up to $39,000 per year in taxes.
4. Use a Backdoor Roth IRA to Boost Savings
Roth IRAs phase out at $198,000 to $208,000 for married couples filing jointly and $125,000 to $140,000 for single filers. If your income exceeds these caps you can still put money in a traditional IRA. You can then convert your traditional IRA to a Roth IRA which will allow your funds to compound and then be withdrawn without paying taxes.
5. Open a Health Savings Account
The primary purpose of an HSA is to assist with paying health care costs. However, these accounts can also be used as a retirement planning tool. An individual or employer can contribute up to $7,200 for a family or $3,600 for a single person. These contributions are 100% tax-deductible and any funds that are not used for medical expenses remain invested and grow over time.
6. Move to a Retirement Friendly State
You can maximize your purchasing power by living in a state with tax rules that are favorable to retirees. Most states don’t tax Social Security. Florida, Alaska, South Dakota, Texas, Wyoming, Washington, and Nevada do not collect state income taxes. Tennessee and New Hampshire do not collect tax on earned income, but they do tax interest and dividends. However, before deciding on a move, you should also consider the cost of living and other taxes, such as state and local sales tax, in addition to understanding retirement and Social Security Benefits and their tax implications.
Planning for your retirement is one of the most important things you will do in your life. These six tips can help you get your retirement savings to plan off to a good start.
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