The beginning of a new year is an excellent opportunity for investors to review their retirement savings strategy and make any required adjustments. By making the most of your retirement contributions now, you will be able to spend more in retirement or retire sooner if you so want. Explore these five tips for maximizing your retirement funds as you consider your retirement strategy.
1. MAKE SURE YOUR AUTOMATIC PAYROLL CONTRIBUTIONS ARE UP TO DATE
In 2022, the employee contribution limits for 401(k) and comparable employer-sponsored retirement plans will be raised to $20,500. In addition, HSA contribution limits have been raised to $3,650 for individuals and $7,300 for families.
If you previously contributed the maximum amount to such accounts in 2021, you can raise your payroll deductions in 2022 to save even more money. You should still strive to raise your funds if you haven’t already reached the maximum. A decent objective is to raise your payroll deduction rate by 1% per year until it reaches 10% to 20% of your paycheck.
Making minor changes year after year has a limited influence on life quality. This is especially true if your increases exceed the automatic contribution increase.
2. START SAVING RIGHT AWAY
“Time in the market beats timing the market,” you may have heard. While stock prices fluctuate often, they generally rise in the long run. The longer you invest your money, the more money you will have in the end.
Front-loading your retirement funds will help you make the most of your market time. You can put up to 100% of your earnings into a 401(k) plan (k). Early in the year, contribute as much as you can and max out your contribution maximum to build a strong 401(k) balance for retirement. However, keep in mind that you might not get the entire 401(k) match if you choose this technique.
A front-load IRA is another option. If you’re feeling generous, you may put $6,000 into an IRA on January 1st. You must earn at least $6,000 in 2022, but not until December 31.
3. GET THE FULL MATCH ON YOUR 401(K)
You’re missing out on a significant portion of your pay if your company doesn’t match your 401(k) contributions in full. While a few percentage points of your wage may not appear to be significant, the figures build up over time.
Contact your HR department if you’re unclear about your 401(k) match benefits. They’ll be able to alter your automatic payments to the required minimum to receive the match. If you’re able, make a larger contribution.
4. MAKE FEES A TOP PRIORITY
Fees can eat up a significant portion of your retirement funds. If you’re primarily saving in a 401(k), you should look at the account’s expenses, such as administrative and investment management fees, as well as the expense ratios of the mutual funds and ETFs accessible. If the costs are high, you may want to consider contributing more to an IRA with low or no fees instead of a 401(k).
You might choose to roll over the assets in an old 401(k) to an IRA if you left an old employer with a 401(k). Over the course of the investments, this might save you a lot of money in fees.
Finally, assess your present investments as well as other possibilities. A managed target-date fund may have high expense ratios, while an ETF counterpart might achieve the same result for a fraction of the cost.
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5. CONSIDER SELF-EMPLOYMENT AS AN OPTION FOR RETIREMENT
You can create a self-employed retirement plan if you have a side business that provides even a little amount of revenue. A SEP IRA and a single 401k are the two most common alternatives (k).
You might be allowed to use a solo 401(k) for your self-employment income even if you have a 401(k) at your day job. With very high contribution limits, you may put up to a quarter of your net self-employment salary into a solo 401(k) or SEP IRA.
Additionally, as an employee, you can contribute up to $20,500 to a solo 401(k), but this amount is decreased if you contribute to another 401(k). Your overall self-employment salary may also put a limit on how much you may put into a solo 401(k).
A self-employed retirement plan can increase your savings capacity significantly if you want to maximize the amount you save in tax-advantaged accounts. When you combine the above suggestions with the ones above, you’ll be far ahead of the game when it comes to retirement planning.
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