November 27, 2020

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BEST WAYS TO SAVE FOR RETIREMENT

3 min read

SAVING FOR RETIREMENT doesn’t have to be a chore. A few small changes can create a far larger retirement account balance, given sufficient time to compound.

Here are some ways to save more for retirement without reducing your wellbeing:

Save 1 percent more.
Redirect your increase.
Contribute your tax refund.
Buy a 401(k) match.
Claim tax breaks.
Pay lower prices.
Avoid penalties.
Cut one unnecessary expense.

Save 1 percent More
A small increase in saving can result in a major increase in your retirement nest egg over time. If you earn $50,000 per year, save 1% more ($42 per month) and earn 6% yearly returns, you’ll have an additional $57,517 following 35 decades. “Every year, set aside a little bit more than the year before,” states Michelle Smalenberger, a certified financial planner and CEO of Financial Design Studio inDeer Park, Illinois. “If you put aside $5,000 last year, raise that to $5,100, for instance.”

Redirect Your Increase
Raises offer an opportunity to enhance the volume you are saving for retirement without reducing your take-home pay. Next time you get a paycheck, consider tucking some of it into a retirement account. “There is no better way to compound your retirement savings than by boosting your contributions whenever you get a pay raise,” says Bill Nelson, a certified financial planner and founder of Pacesetter Planning at Natick, Massachusetts. “Your paycheck will still be larger as a consequence from the raise, so you won’t even notice the money is’missing'”

Contribute Your Tax Refund

You can deposit your tax refund in a conventional IRA or Roth IRA with IRS Form 8888. You may elect to apply the IRA donation to your current tax return or the subsequent tax year. “If you get a tax refund, the government has essentially’saved’ this cash for you during the tax year,” Nelson says. “By redirecting this savings to an IRA when you receive your tax refund, then you’ll be adding to your retirement fund Before realizing that the money is gon

If you are given a bonus, inheritance, prize money or other windfall of money, avoid the temptation to spend it immediately. Make a habit of placing a part of each influx of money aside for the retirement. You can prevent some of the tax consequences of receiving extra income if you tuck the amount to a 401(k) or IRA. Income tax won’t be due on the money until you draw it in the account.

Be sure to save sufficient to qualify for company contributions to your 401(k). “I recommend putting away enough in the company plan to make the most of the game and receive the free money,” states Megan Donnelly, a certified financial planner forQuabbin Advisors in Wilbraham, Massachusetts. And prior to leaving a job, make certain you’re vested in the 401(k) plan so you can take those company contributions with you.

Your money will grow quicker without the drag of taxes. You are able to delay paying income tax using a traditional 401(k) or IRA, or prepay taxes using a Roth 401(k) or Roth IRA. “Using a Roth IRA offers alternatives in retirement during the withdrawal phase,” Donnelly says. “There’s a great deal you can do to handle your taxes better if you’ve got a Roth setup before you retire.” Low- and moderate-income savers may also qualify for the saver’s credit.

Pay lower prices

Don’t pay more than what’s crucial to make investments. Use your annual 401(k) fee disclosure announcement to identify cheap funds from your 401(k) plan or shop around for inexpensive index funds for your IRA. Lower fees mean you get to save your cash.

AVOID PENALTIES
Look out for early withdrawal penalties if you draw cash from your retirement accounts before age 59 1/2. There could also be fees should you frequently exchange funds. Remember to begin retirement account withdrawals after age 72 to prevent another penalty.

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