Maxing out retirement accounts may not be the best move for everyone, but it’s something I look forward to every year. Retirement accounts, such as a 401(k) and Roth IRA, can come with many benefits that can make your life easier now and in retirement.
For example, pre-tax contributions to a 401(k) can lower your taxable income. If you earn $100,000 in 2024 and contribute $23,000 to your 401(k), your taxable income drops to $77,000. Also, if you earn that much this year, you can contribute to a Roth IRA and enjoy its benefits. Instead of taking an upfront tax deduction, you’ll contribute after-tax dollars to a Roth IRA so you can receive tax-free income in retirement.
Setting retirement goals and achieving them each year has a significant impact on your financial future and brings you closer to building a healthy nest egg. If you want to up your retirement savings game this year, here’s a rundown of what you can do to make it happen.
Start with your goals
Goal setting is a skill, and mastering this skill can bring benefits in every area of your life. If you’re able to set clear and intentional retirement goals each year, you’ll be well on your way to living the retirement you’ve always dreamed of.
When it comes to retirement goals, it’s important to understand how different accounts work and be aware of any restrictions, such as contribution limits and income thresholds. For example, you can contribute up to $23,000 to a 401(k) by the last business day of 2024. You can also contribute the full $7,000 to a Roth IRA for 2024 before the tax filing deadline (April 15) if your income is not above the threshold – for example, $146,000 for a single person. If you are 50 or over, the contribution limits will increase.
So if you want to max out your 401(k) and Roth IRA this year, you can set a goal to contribute up to $30,000 before the deadlines if you’re under 50.
Make it easy to achieve your goals
Adding five figures to a retirement account may seem ambitious if you’re just starting out on your journey. However, there are some steps you can take this year to make achieving your goals easier, including:
- Live below your means: Make sure your expenses are less than your income so you can free up more money for savings.
- Create a budget: Keep track of your income and expenses to identify areas where you can save more.
- Develop profitable skills: Learn how you can use artificial intelligence and technology to increase your earning potential.
- Build an emergency fund: Keep at least 3 to 6 months of funds for unexpected expenses to avoid dipping into your retirement savings.
- Pay off the debt: So what does it take to pay off high-interest debt as quickly as possible so you can pour more money into your retirement savings.
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Create your own retirement contribution game plan
Your game plan will either increase or decrease your chances of maxing out your 401(k) and Roth IRA in 2024. Here are some tips for creating a solid retirement contribution plan this year:
- Plan ahead: By saving a little each month, you can avoid trying to make a big contribution before the deadline. Determine what you will need to contribute each week or month to reach your goal ahead of schedule.
- Don’t waste your windfall: Keep extra money, such as work bonuses or tax refunds, directly into your retirement account. That way, you don’t have to rely solely on your primary source of income to fund your Roth IRA.
- Automated contributions: Set up recurring contributions from a checking account to your IRA so you don’t have to manually contribute each month. Your employer will automatically deduct 401(k) contributions from your paycheck.
Reaching the finish line
If you’re a late starter in retirement planning, maxing out your 401(k) and Roth IRA can help you catch up and increase your chances of building a millionaire’s retirement. However, there are certain situations where maxing out your 401(k) and Roth IRA may not make sense. Review your finances and contact a professional if necessary. Retirement planning is personal, so the more you can customize your plan to fit your needs and goals, the better aligned you will be.
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