Quantcast

How to Power Up Your Retirement Savings

by

Saving money for retirement is a difficult task. Luckily, there are numerous tools and strategies to help us attain the retirement goals. Here are 5 great methods through which you can boost your savings for retirement.

  1. Maintaining the asset allocation

As you start investing, you usually pick an asset allocation which is in line with your investment goals and risk tolerance. But your investments start deviating from that plan immediately when the markets open, changing the investment values. Retirement savers are required to occasionally shift back towards the target asset allocation for avoiding too little or excessive risk. Especially with the increase in equity values across the years, a lag in rebalancing can lead to significant deviation of investments from the planned asset allocation.

  1. Going for a Roth IRA

An after-tax Roth account leads to addition of tax diversification to the portfolio, helping to bring down your tax bill in retirement since the tax is being pre-paid now. The added bonus is that required minimum distribution in case of retirement is not there in Roth IRAs.

If you are disqualified from contribution to a Roth IRA by your workplace retirement plan or income, an alternative exists. You can contribute after-tax dollars through what is called a backdoor Roth IRA. The conversion does not involve any taxes, leading to a tax-free investment.

  1. Converting an IRA to a Roth afterwards

Another significant retirement account plan includes conversion of pre-tax retirement account balances to Roth IRA. Since this involves taxes, be careful to carry out the conversion in a year wherein there is a specifically low income.

Those who are in upper tax brackets in their working years frequently obtain a big tax break through contribution of pre-tax dollars towards conventional retirement plans. But the income might fall considerably as retirement approaches, thereby bringing down the marginal tax rates. In the years when there are lower tax rates, pre-tax retirement dollars can be strategically converted to Roth accounts. This minimizes the taxes which would later be due in retirement.

  1. Hedging your bets

This is a good option to save for retirement. The IRS allows contributions to both Roth as well as conventional 401(k) and IRA accounts. Here, you do not get an all or none proposition. The limits for contributing to 401(k) and IRAs do not alter simply because you go for manifold accounts. However, the contributions can be split up between both conventional retirement savings options and Roth. In that case, there will always be options in retirement irrespective of what happens to the tax rate.

  1. Starting a business

Online businesses have a lot of retirement benefits. In comparison to IRAs and 401(k)s, retirement plans pertaining to the self-employed come with considerably higher contribution limits. Individual 401(k) plans as well as SEP IRA allow a business owner having adequate earnings to make a contribution of up to $52,000 in the year 2014. The limit gets adjusted every year to meet the demands of inflation. Certain small business owners are able to save even more through defined benefit plans.

 

 

Related posts

Leave a Reply

Your email address will not be published. Required fields are marked *