There are many ways to super-size your savings in the years leading up to retirement. Depending on your goals and stage in life, additional savings may need to be allocated elsewhere. However, if you are over age 50 and nearing the retirement horizon, here are a few tips for taking your annual savings plan to the limits.
First, contribute the maximum to your company sponsored retirement plan. If you participate in a 401(k) plan or a 403(b) plan through your employment you can contribute $24,000 to the plan in 2015. If a spouse can do the same then you can double the amount for a total of $48,000. If your company offers a match or makes other discretionary contributions to the plan on your behalf then you will have an even greater amount put away.
Next, contribute to an IRA in addition to what you save through your employment. You can contribute up to $6,500 to a Traditional IRA in addition to what you defer through your employer’s plan. Granted, the contribution may not be tax deductible in the year you made the contribution, but the earnings grow tax-deferred.
For those with self-employment income another savings strategy is to contribute some of your earnings to a SEP IRA. The maximum you can contribute to a SEP IRA is the lesser of $53,000 or 25% of your self-employment income, and there are some special rules which apply in arriving at the calculation, so be sure to discuss this with your CPA first.
Do you have a health savings account (HSA) as part of your medical insurance plan? If so, consider contributing as much to the HSA as possible. The limits for 2015 are $3,350 for a single person, $6,650 for those who have a family medical plan. A health savings account is a tax-advantaged medical savings account available to those who enroll in a high-deductible health care plan. The funds you contribute to the account are not subject to federal income tax when deposited into the account. Funds in your HSA roll over and accumulate year to year if not spent. As such, the HSA is an ideal way to save money on a pre-tax basis for future medical expenses.
Another opportunity for tax-deferred savings is through a 457 Plan – but this type of savings plan is only available for governmental and certain non-governmental employees. If your employer offers a 457 Plan then you can contribute up to $24,000 per year to the plan (again, for those 50 and over).
Finally, if by chance you have maximized your tax-deferred or tax-favored contributions to the above types of accounts you can always save money on an after-tax basis using a savings or investment account.
Have questions about which savings strategy is best for you? Contact Patrick, firstname.lastname@example.org or 859-514-3350.