Ramp Up Your Retirement Savings With These Six Strategies

Are you planning to retire in the next few years? It’s still not too late to make a difference in how much you’ll have available for retirement. And because you’re likely at a high point in your earnings, you’re well-positioned to help yourself. Consider putting these six strategies to work:

  • Catch-up contributions. In addition to possibly having higher earnings, you may have another advantage regarding retirement savings – you can make “catch-up” contributions to your tax-deferred retirement accounts, thereby allowing you to exceed the limits. If you’re 50 or older, you can put in an extra $1,000 a year to your Individual Retirement Account (IRA) above the $6,000 limit; for a 401(k), you can surpass the $20,500 limit by $6,500, for a maximum contribution of $27,000 in 2022.
  • After-tax contributions. What if you’re already “maxing out” on your 401(k), even with your catch-up contribution, and you can still afford to put more into your plan? Are you out of luck? Not necessarily – your employer might allow you to make “after-tax” contributions. In 2022, the IRS allows you to put in $61,000 (or $67,500 if you’re 50 or older) to your 401(k), an amount that includes your pretax contributions, your after-tax contributions, and any contributions from your employer. Your after-tax contributions, like the rest of your 401(k), can grow on a tax-deferred basis, and you’ll pay taxes on the earnings when you start taking withdrawals.
  • Roth conversions. If your plan allows it, you may be able to convert your after-tax 401(k) dollars to Roth dollars through an in-plan conversion or a rollover to a Roth IRA. You won’t owe taxes on the after-tax contributions because you already paid taxes when you contributed the money, but any earnings on the after-tax contributions will be subject to taxes. The benefit, though, is that future earnings will grow tax-free.
  • Backdoor Roth IRA. If your earnings exceed the Roth IRA limits, you can create what’s known as a “backdoor Roth IRA.” This isn’t an official type of IRA, but rather a strategy for taking advantage of the benefits offered by a Roth IRA, such as the potential for tax-free earnings, no mandatory withdrawals (RMDs), and greater flexibility in managing your taxes in retirement. To create this backdoor arrangement, you make nondeductible (after-tax) contributions to a traditional IRA and then convert your contributions to a Roth IRA. Since the contribution is after-tax, you won’t pay additional taxes on the conversion of the contribution; however, any earnings on the contribution will be subject to taxes.
  • Health Savings Account (HSA). Once you retire, healthcare will likely be one of your largest expenses – so, if you have a health savings account (HSA) available through a high-deductible health plan, you may want to take advantage of it. In 2022, you can put up to $3,650 in an HSA, if you’re single, or $7,300 for family coverage. You contribute pretax dollars to your HSA, your earnings grow tax-free, and your withdrawals are tax-free, provided they’re used for qualified medical expenses, creating the potential for triple tax savings.
  • Annuity. Even if you’ve contributed the maximum amounts to your IRA and 401(k), including after-tax contributions, you may still have income you’d like to invest for retirement. Consider purchasing a nonqualified annuity, which can be structured to help provide you with a lifetime income stream. Annuities offer tax-deferred growth potential – you won’t pay taxes until you start taking withdrawals.

Need retirement planning guidance? Our network of advisors can help you determine which options are best for you.

Investment Advisory Services offered through Sound Income Strategies, LLC, an SEC Registered Investment Advisory Firm. The Retirement Income Store® , LLC and Sound Income Strategies, LLC are associated entities.

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