Irrespective of your age or profession, it is essential that you always work towards retirement, which is the essence of your 401(k) plan. The 401(k) is a retirement savings account that helps diligent workers save a portion of their earnings for retirement.
Numerous employers provide their employees with 401(k) plans and go ahead to match the employee’s contribution. This means that your employer will match it with a particular percentage for every amount you add to your 401(k).
So with your contribution and that of your employer, the amount of money in your 401(k) increases. While some employers will match your contribution up to 50%, others may stick to the dollar-for-dollar system until it gets to a particular limit.
Most financial planning experts will encourage you to max out your 401(k). A person may earn up to $0.50 on every dollar, about 6% of their total salary. For example, it could be that the employer is offering a $1,800 check to an employee who makes $60,000 yearly. The $1,800 will grow with time, and it will be unwise to turn down such an amount of money.
So what can you do after maxing your 401(k)? Here are some ideas:
The people who contribute the most dollars to their 401(k) plans can supplement their retirement savings with different investment tools, including:
Maximizing individual retirement accounts (IRAs)
After maxing out your 401(k), you can add up to $6,000 to your Individual Retirement Account (from 2021). You must have earned up to that amount of money, and if you are above the age of 50, you can add $1,000. But please note that some IRA alternatives come with income restrictions.
Using traditional IRA Income limits
The process of funding a Roth IRA also entails income limitations, but unlike regular IRAs, the limit is crucial for determining a person’s suitability to contribute. In 2021, single taxpayers had their income phase-out starting at $125,000 and going on for earnings that exceed $140,000. While for married taxpayers who file jointly, their phase-out begins at $198,000 and finishes above $208,000.
The HSA Accounts
HAS stands for Health Savings Accounts, and it is easily accessible to people with deductible health plans. They can access them either from their employers or independently buy them. The contributions are also made on a pre-tax basis.
If it is used for qualified medical expenditures, then withdrawals from the account will be tax-free. More so, since users are not obliged to withdraw money at the end of every year, HSAs can work like other retirement plans, which makes them ideal for your healthcare retirement saving plans.
Taxable Investments
These investments are an excellent way to amass retirement savings. With dividends and capital gains getting taxed, the long-term gains on your investments which you hold for a year, will be taxed at a favored rate. If you max out your 401(k), get to know the asset location to confirm that the investment is in a taxable versus tax-deferred account.
Variable annuities
Although annuities get a bad reputation, you’ve got to understand that they can still help offer another platform to grow your tax contributions. Variable annuities also have sub-accounts like mutual funds. Soon enough, the contract holder can fully or partially convert it when the gains are taxed as ordinary income.
Investing money is always an excellent idea for your future, and you don’t have to become a professional investor to get things right. As a diligent saver, you can max out your 401(k) contribution and build up other retirement-saving ideas. What matters the most is that you are moving forward with your plans to retire into a safety net.
FOR MORE INFORMATION ON HOW ROSOVICH & ASSOCIATES, INC. CAN BEST HELP YOU WITH YOUR TAX FILING NEEDS, PLEASE CLICK THE BLUE TAB ON THIS PAGE.
THANKS FOR VISITING.
Rosovich & Associates, Inc.