When it comes to saving for retirement, maxing out your 401(k) and/or Individual Retirement Account (IRA) is just the beginning. Here are four scenarios in which you may be able to give your savings an extra boost.
1. Your spouse doesn’t work
So long as you have earned income, your nonworking spouse can maintain a separate IRA in his or her name—funded from your earnings—effectively doubling your savings potential.
2. You freelance or have a side business
If you earn income from freelance work or a side business, you may be able to contribute to a Savings Incentive Match Plan for Employees (SIMPLE) IRA, a Simplified Employee Pension (SEP) IRA or a Solo 401(k)—even if you contribute to a 401(k) offered by your primary employer. Be aware, however, that you may not be able to max out both your company 401(k) and a self-employment retirement plan, so be sure to check IRS rules at irs.gov/retirement before contributing.
3. You participate in a high-deductible health plan
Participants in such plans are eligible to open a triple-tax-advantaged health savings account (HSA). Contributions are federally tax-deductible; capital gains, dividends and interest accumulate tax-free; and you pay no tax on withdrawals for qualified medical expenses. Beginning at age 65, HSA withdrawals used for any other purpose will be taxed as ordinary income, putting them on the same footing as funds from an IRA. Best of all, HSAs aren’t subject to required minimum distributions (RMDs) beginning at age 70½, giving you greater control over withdrawals.
4. You’re age 50 or older
Starting in the year you turn 50, the IRS allows you to save an extra $6,000 annually to your 401(k) and $1,000 annually to your IRA, thanks to catch-up contributions. That means in 2018 you can put away as much as $24,500 in your 401(k) and $6,500 in your IRA.
For a more detailed financial plan specific to your situation, give us a call. We are happy to assist you with understanding your unique retirement planning needs.
Source: Charles Schwab & Schwab Center for Financial Research
Louis J. Chabrier