Retirement

Approaching Retirement: Supercharge Your Savings

If you’re approaching retirement there are a number of ways that you can reduce your taxes, increase your savings and accelerate your path to retirement over the next few months. Giving you’ll be going through the largest financial transition of your life as you enter retirement, you’ll want to make sure that you’re accumulating assets as quickly as possible by utilizing tax-efficient saving strategies on your path to creating a robust and reliable income stream in retirement.  There’s no doubt investment strategy and planning is key to a confident retirement transition but in this post we’re going to address specific strategies to save assets during the last final savings push before retirement.

 

Roth IRA – If you are 50 or over and your modified adjusted gross income is below $196,000 for married couples and less than $133,000 for single/head of household/living apart + filing separately, you have the option of contributing up to  $6,500 per year to a Roth IRA.   Your spouse can also contribute $6,500 to his/her Roth as well, regardless if they have earned income.  One of the great things about the Roth IRA is that this money will grow tax-free (according to current law) forever.  Further, with a Roth IRA you are not currently required to take minimum distributions.  Ever. Subsequently the Roth IRA makes not only a great savings vehicle but a tremendous legacy vehicle for passing assets to your heirs.  If you are considering leaving assets to your children or grandchildren, the Roth IRA (through the stretch provision) is a great way to put away assets now, let them grow and, upon your passing, provide a significant income stream over a long period of time well into the future.

 

Traditional IRA – If you are 50 or over and your income is below $119,000 for married couples and less than $72,000 for single/head of household, you have the option of contributing up to $6,500 per year to a traditional IRA. A contribution to a traditional IRA will allow you reduce your taxable income and subsequently increase your current cash flow.  To maximize this strategy apply the saved taxes into either reducing debt and investing that additional cash long-term. And while the Roth IRA is a very attractive means of investing versus that of a traditional IRA, the traditional IRA can come back into play if you exceed the income limits currently in place for Roth contributions.  Making a nondeductible contribution into a traditional IRA account and then converting those dollars into a Roth account remains an effective, if not widely used strategy.

 

Traditional 401(k) Contributions – In your years approaching retirement you may want to maximize your traditional 401(k) contributions in order to reduce your taxable income while you are in, potentially, the highest taxable bracket of your life and, potentially, higher than you will be in retirement.  This strategy will ideally help you avoid taxes while you are in a higher tax bracket, but give you immediate access to those funds as soon as you retire, while you are in a lower tax bracket.  Temporarily delaying social security can be considered to lower your tax exposure if you need access to 401(k) funds as soon as you enter retirement or wish to convert traditional 401(k) funds to Roth in order to pass assets to heirs in a very advantageous way.

 

In your final push towards retirement these are a few of the many strategies you should consider when it comes to maximizing your current assets and reducing your current and future tax exposure as you prepare for the biggest financial transition of your life.

 

Image Credit: Sharon Mccutcheon

Please Note:  Speak to your tax, legal or financial advisor for specific advice about your particular plans and situation.

John Bubello Retirement Financial Advisor

John R. Bubello CFP®

I specialize in Retirement Planning & Investment Management.

My clients worry less, maximize their money, avoid mistakes and retire with clarity and confidence.

The Retirement Income Blog

Advice and perspective for the soon-to-be-retiree

Creating a retirement plan requires making some complicated decisions about our financial lives.

But complicated doesn’t have to mean confusing

My goal is to break down key decisions and concepts, frame them in the context of your retirement, and help you make smart, confident decisions about your retirement.

Because you only retire once.

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