7 Ways to Increase Your Retirement Contributions

April 09, 2020 by Karen Thomas-Brandt, EA
Jar with retirement savings

For some of us, retirement seems like an eternity away; for others, it is just around the corner. No matter which group you fall into, it is never too early to start saving for the future. “But how,” you might ask. “I can barely pay my bills as it is. How can I afford to put money away for retirement?” Good question, but a better question might be, how can you afford not to?

Consider this: If two people save $100 a month for retirement, but one starts at 25 and the other starts at 35, the early saver will have nearly twice as much in their bank account by age 65. Twice as much! You don’t have to start big; you just need to start. Below are some suggestions for getting the ball rolling.

Start today: There is no time like the present. Start with a small amount, perhaps $20 per paycheck. Instead of eating out for lunch or grabbing a coffee out, put that money away. You will be glad you did.

Set-up automatic contributions: Have your retirement contribution directly taken out of your paycheck. It is much easier to put money into a retirement account before it ever hits your checking account. Alternatively, you can have contributions taken directly from your bank account each month. I recommend doing it shortly after you get paid before you have time to “accidentally” spend it.

Take advantage of any employer match: At the very least, contribute enough to your employer-sponsored plan to get your full employer match. If you are fortunate enough to have an employer who matches an employee’s contribution, take full advantage of it! If your employer is willing and able to match, say, the first 6% of your contribution, then contribute 6%. It is essentially free money!

Start an IRA: If you don’t have a retirement plan available through your employer, or if you are looking for more retirement savings options, consider putting money into an Individual Retirement Account (IRA). Depending on your income level, you may be able to take a tax deduction for contributions to a Traditional IRA, and earnings will be tax-deferred until you begin taking distributions. Alternatively, you could start a Roth IRA. Unlike Traditional IRAs, Roth IRA contributions are not tax deductible, but earnings can grow tax-free.

Take advantage of catch-up contributions: If you are 50 years of age or older, you can contribute more money to an employer-sponsored plan and an IRA. Catch-up contributions might be especially helpful if you were a little late getting into the savings game.

Save your raise: Each time you receive a wage bump, put part (or all) of it into retirement savings. You can’t miss what you never had.

Remember annual limit adjustments: For 2020, the annual limit for a 401K contribution is $19,500, with a catch-up contribution limit of $6,500, and the IRA contribution limit is $6,000, with a catch-up contribution limit of $1,000. These limits change annually, so be sure to adjust your contribution amounts each year to account for the increases.

It is never too early to start planning for, and saving for, retirement. You can probably think of many reasons not to save money, but the longer you put off saving, the more it will set you back in the long run. It doesn’t matter the amount. Start small. But start today.

Tags: 401k, IRS, retirement

SEARCH

 

Karen Thomas-Brandt, EA
Corporate Trainer

 

Karen Thomas-Brandt, EA, is a Corporate Trainer at TaxAudit, the largest and fastest-growing audit defense service in the country and the exclusive provider of TurboTax® Audit Defense. With more than 16 years in the tax field, Karen has prepared thousands of tax returns and defended hundreds of taxpayers in audits. In her current role, Karen specializes in researching complicated tax topics, developing workshops, and training tax professionals on effective audit representation and tax return analysis.


 

Recent Articles

Inheritance on top of money
Generally, when you inherit money it is tax-free to you as a beneficiary. However, like so much in tax law, the answer to this question is “it depends.”
Warning tax scam sign laying on a keyboard
The IRS has published a “Dirty Dozen” list to warn taxpayers to beware of joining the thousands of people who lose millions of dollars to scammers each year.
Stimulus Check
If you are currently under audit with IRS, you will still receive a stimulus check if your income falls within the eligibility limits.
small business owner
If you are the sole proprietor, the chance of being selected for audit by the IRS is 4.5 to 12 times higher than it is individuals without a business.
This blog does not provide legal, financial, accounting, or tax advice. The content on this blog is “as is” and carries no warranties. TaxAudit does not warrant or guarantee the accuracy, reliability, and completeness of the content of this blog. Content may become out of date as tax laws change. TaxAudit may, but has no obligation to monitor or respond to comments.