If you’re looking for ways to add a little umph to your retirement savings there’s a lineup you should consider. Here’s a list of retirement planning vehicles built to drive performance and make your money go further.
Heavy Duty Savings for the Long Haul
Likely the single most productive retirement planning vehicle you have available is your employer’s 401(k) plan. If you’re on active duty, it’s the Thrift Savings Plan (TSP).
These plans make it easy for you to save because your regular contributions to them are made by payroll deduction. You never see the money. So, you can’t spend it. It starts working for you before your paycheck gets deposited.
And your employer may actually put in additional money for you. Matching contributions (typically a percentage of what you contribute up to a set limit) could significantly increase your savings.
Okay, now this is important, so pay close attention: employer matches are free money. You’re entitled to them just for being in the plan. All you have to do is contribute.
This Sensible Vehicle can Deliver Powerful Savings
Everyone who has wages can contribute to a Traditional IRA. This is the case regardless of age. So, it’s never too early to start.
An IRA is a powerful retirement planning vehicle because your investments compound tax deferred…even if your contributions aren’t deductible!
Making nondeductible IRA contributions is typically a good idea because the main role of your retirement accounts is to save for the future, not to get a current year tax deduction.
More importantly, the future value of those contributions will be more valuable to you in retirement than the tax deductions they would have created (if they were deductible). Making nondeductible contributions more than compensates you for any perceived lost tax savings.
This Baby is Loaded With Optional Equipment
There are many similarities between a Roth IRA and a Traditional IRA. But the differences make for some powerful financial planning opportunities.
For example, distributions you take from a Roth IRA in retirement aren’t taxable. So, you can use your Roth IRA early in retirement to prevent your Social Security from being taxed. This would also allow your Traditional IRA to continue compounding tax deferred for a longer period.
If you’re older than 59½ and keep money in your Roth IRA at least 5 years, then distributions aren’t subject to any penalties. And you can use the money for anything.
A Custom Conversion for Retirement Performance
If your employer offers you a Health Savings Account (HSA), take advantage of it…especially if they contribute to it. The match, like your 401(k)’s, is free money.
Money in an HSA compounds tax free and withdrawals to pay medical expenses aren’t taxable. So, you can use it to pay medical expenses (which late in life are typically pretty big) without generating taxable income like an IRA would.
Time to get Rolling
While an ideal retirement planning strategy might be to contribute the maximum to your 401(k), Traditional IRA, Roth IRA and HSA accounts, that may not be possible for everybody. But the reason to contribute as much as you can to as many accounts as possible is because of their long-term benefits:
- Building retirement savings
- Reducing taxable income
- Compounding tax deferred
The tax-deferred compounding bullet is the probably the most important here. Compounding is the return you earn on your investment’s returns.
It’s the turbo charger powering your long-term returns. Over time, compounding can multiply the future value of your contributions.
Ready for a Tune-up?
To run a diagnostic on your current retirement plan, head to our Retirement Planning Calculator. You’ll see how your current plan stacks up and how some fine tuning might improve your performance.
Or call us at (800) 235-8396. We’re available Monday-Friday 7:30am to 8:00pm (CT).