There are dozens of excuses for not saving for retirement. However, there are many reasons why the longer you wait to start saving, the more financially difficult it will be in the future. Here’s why developing a plan and taking advantage of every savings opportunity can help set you on a path to financial freedom in your golden years.
Let’s face it, in the shuffle of immediate priorities, saving and planning for retirement isn’t a walk in the park. For some, retirement can seem so far into the future that it isn’t worth addressing today. However, many would say that you can’t get started early enough, because the sooner you start, the sooner you may be able to retire.
One of the most important aspects of retirement planning is making sure your savings are working as hard as they can for you.
Here are a few ways to help maximize the returns from your retirement savings accounts.
Take Advantage of Employer Matching Contributions
Are you still in the workforce?
Employer matching contributions are a great way to help boost your retirement savings. In Iowa, many employers offer matching contributions for 401(k) or other retirement savings plans as a benefit to their employees’ golden years.
However, not all employer matches are the same… Some employers offer a 50% or 100% matching benefit, while others won’t match any of your contributions. Some plans may offer a lower-percentage contribution match on a higher percentage of your pay. For example, a company might match 50% of the first 8% of your pay rather than matching 100% of the first 4% of your pay. This is done so employees will put more in their accounts. This strategy is called “stretching the match.”
It is important to take full advantage of employer matching contributions because it is essentially free money. Not contributing enough to get the full match means leaving money on the table. But if you fail to put money into your 401(k), you give up the matching amount as well.
Remember that helping to help maximize employer matching contributions is a great way to increase your retirement savings and reach your goals faster.
Diversify Your Investments
Diversifying your investments is a key aspect of helping to manage risk and help maximize returns. By spreading your investments across different asset classes, industries, and geographic regions, you can help reduce the impact of any one investment on your overall portfolio.
One way to diversify your investments is to invest in a mix of stocks, bonds, and real estate. Stocks represent ownership in a company and have the potential for higher returns, but also come with more risk. Bonds, on the other hand, are debt securities that offer a fixed return and are generally considered less risky than stocks. Real estate can also be a good investment option, as it can help provide a steady stream of income through rent and potential appreciation in value.
At the end of the day, your trusted financial advisor can be greatly beneficial in helping you create a diversified portfolio that aligns with your unique situation and goals.
Consider a Roth IRA
A Roth IRA is a type of individual retirement account (IRA) that is available to residents of Iowa and other states. Unlike traditional IRAs, contributions to a Roth IRA are made with after-tax dollars, which means that you do not receive a tax deduction for your contributions.
One of the main benefits of a Roth IRA is that it allows you to access your money tax-free in retirement. This can be especially beneficial for those who expect to be in a higher tax bracket in retirement than they are currently. Additionally, there are no required minimum distributions (RMDs) for Roth IRAs during the account holder’s lifetime, so the money can continue to grow tax-free.
It’s important to note that contributions to a Roth IRA are subject to the same annual contribution limits as traditional IRAs, and contributions must be made by the tax-filing deadline, usually April 15th, of the following year.
However, it’s important to consider your current and expected future tax situation, as well as your overall retirement savings strategy, before deciding whether a Roth IRA is right for you. It is always a good idea to consult your financial advisor or tax professional before making a decision about contributing to a Roth IRA.
Take Advantage of Tax Breaks
Iowa offers several tax breaks for retirement savings that can help residents save money on their state taxes while they save for retirement.
- Contributions to traditional IRAs and Roth IRAs are deductible on Iowa state taxes up to certain limits. For the tax year 2023, eligible individuals can deduct up to $2,000 ($4,000 for joint filers) of their contributions to a traditional IRA or Roth IRA.
- In 2023, the contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased to $22,500, up from $20,500.
- Iowa offers a retirement income tax credit for residents age 59 1/2 or older who receive distributions from a retirement plan or IRA. Beginning in 2023, the law lowers the amount of the tax credit that is refundable by 10% per year for five years, for a 50% total reduction in refundability. Other tax credits claimed by corporations will have their refundability lowered by 5% each year, for a total 25% reduction in refundability.
It is important to note that the limits and rules for these tax breaks can change from year to year, so it is important to check with the Iowa Department of Revenue or consult with a tax professional for the most up-to-date information.
Consider Working With a Financial Advisor
Working with a financial advisory firm, such as Johnson Wealth and Income Management, can be a great way to help maximize the returns from your retirement savings accounts in Iowa. A financial advisor can help you create a customized retirement savings plan that takes into account your unique situation and goals.
A financial advisor can help you:
- Understand and take advantage of employer matching contributions
- Diversify your investments
- Consider the right type of retirement accounts (Roth, Traditional IRA)
- Take advantage of Iowa state tax breaks
- Review your portfolio periodically and make adjustments as needed
- Identify potential risks in your portfolio and provide strategies to mitigate them.
By working with a Fiduciary advisor like Matthew P Johnson of Johnson Wealth and Income Management, you can gain access to professional investment advice and guidance to help you make informed decisions about your retirement savings.
Saving enough money for retirement may feel like a monumental task, but if you develop a plan and stick to it, it is an achievable goal. Do whatever you can to start saving and investing today because even small amounts add up over the decades. Be sure to take advantage of your employer’s retirement plan options and contribute enough money to receive the full employer match.
Remember, the earlier you start saving for retirement, the more time your money has to grow. So, start planning now and make the most of your retirement savings accounts with Johnson Wealth and Income Management. Our team of experienced professionals can provide you with customized retirement planning solutions.
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