But don’t let those numbers scare you. Wherever you’re at in your retirement savings journey, the new year is a great time to review where you stand. And luckily, there are some easy tips you can follow to put you on the path to a nice retirement fund.
In this article, we’ll show you how to boost your savings by taking full advantage of different types of retirement accounts.
Max Out Your 401(k)
If your employer offers a 401(k)—or a similar plan, such as a 403(b) or 457—max it out or contribute as much you can.
Your taxes will be lower, your company may offer a matching contribution, and automatic deductions from your paycheck make it an easy way to invest.
While those perks of the plan are nice, there’s ultimately one very simple reason to fund your 401(k) to the max: The more you contribute, the bigger your retirement savings. And over time, the power of compound interest and tax deferrals can make a big difference in the amount you will accumulate.
How much can you add to your 401(k)? The federal government makes the call on this, and it often goes up a bit each year to reflect inflation. Here are the latest numbers:
- In 2021, the maximum amount anyone under age 50 can contribute is $19,500. That cap limit will rise to $20,500 in 2022.
- But if you’re 50 or older, you can add another $6,500 in catch-up contributions for a grand total of $26,000.
If you have more than the maximum to stash away, either a traditional or Roth IRA could be a good option to divert your leftover savings.
Take Advantage of Your Employer's 401(k) Match
If you’re really lucky, your employer will match some of your savings. They may match everything you save or up to a certain percentage of your salary.
Whatever the offer is, make sure you contribute at least enough to take full advantage of the match. It’s essentially free money, so make sure you don’t leave it on the table.
An IRA Can Help Too
If you don’t have access to a 401(k)—or if you’re already maxed yours out—consider adding an IRA from a Waco Bank to your retirement savings toolset.
IRAs come in two varieties: traditional and Roth. With a traditional IRA, you don’t have to pay taxes on the money you put into an IRA until you withdraw the money in retirement. With a Roth IRA, you pay the taxes upfront, before you put the money in (like any other income you pay taxes on). But then when you withdraw the money during your retirement years, you don’t pay taxes.
Consult with a friendly financial professional at TFNB to see which account is right for you.
The maximum you can contribute to either IRA accounts in 2021 and 2022 is $6,000, plus another $1,000 if you’re 50 or older. Pro tip: putting your tax refund directly into your IRA account can help get you one step closer to maxing it out.
Automate Your Savings
Building a nest egg is not just about adding to your accounts here and there. Consistency is the key to growing your savings to support you throughout your retirement.
One way to ensure you’re saving consistently is to set up your accounts so that a certain amount of money is automatically transferred to your retirement funds after each paycheck. That way, you prepare for retirement without having to think about it.
If you have a 401(k) through your employer, this is especially simple since most contributions are automatically deducted from your paycheck.
You can also set up automatic transfers straight from your bank account to your IRA. Simply go to your IRA broker, and set up a bi-weekly or monthly transfer to take place after you get paid.
Keep in mind that this approach does require a little bit of math on your part because you don’t want to deal with the hassle of over-contributing. You can see the latest IRA cap limits here.
Don't Forget About HSAs
A health savings account, or an HSA, is a tax-advantaged account, so you can use it to save on top of a 401(k) and IRA for retirement.
These funds can be spent on healthcare costs now or later, and unlike flexible spending accounts, they don’t expire annually. Funds in these accounts can also be invested and kept to use later on in retirement.
Ready to Start Planning For The Future?
Saving for retirement and learning all the different ways to boost your funds are some of the most important things you can do to secure your future.
The banking officers at TFNB in Waco and McGregor have the knowledge and tools to help you develop a savings strategy that will support you comfortably throughout your golden years.
We pride ourselves on being your bank for every part of life—including retirement. If you have more questions about saving, retirement, your 401(k), or your Roth IRA, our team is just a phone call (or a few blocks) away!