Let’s be honest- saving money is certainly not easy. Most of us save a small increment of our checks, and the rest goes to bills and life.
In addition, we don’t always know the in’s and out’s and trick to retirement savings accounts. Or what kind of benefits we could be receiving from them, or our taxes.
So how can we increase our savings, expand on our retirement accounts, and use taxes to our benefit?
1. Make A Small Increase To Your Savings Account
Even just the smallest of increases to your savings can help boost your savings account for retirement.
If you an save just an extra $500 per year between the ages of 30 and 65, with a 7% annual return, that is an extra $70 thousand you will have saved for retirement.
So how do you save an extra $500 per year?
Well , there are a couple of ways.
If you are quite the spender, and not a great saver, you should start by putting your retirement savings into an account you can’t touch! That way you are ever tempted to use your savings for other things.
Therefore, Step 1- Consider setting up an automatic transfer from your checking account, to a Roth IR account.
One effortless benefit of contributing you extra $500 to a tax-deferred, Roth IRA, is that it will also reduce your tax bill.
For example, if you are a worker in the 24% tax bracket, a $500 IRA contribution can save you $120 when tax season rolls around.
I see no downside here, do you?
It is fairly easy to save an extra $500 per year with the proper planning.
There are roughly 52 weeks within 1 year.
Make it your plan to save an additional $10 contribution per week, to what you are already saving- that’s $40 per month.
It’s a great amount that will increase your savings monumentally, but not require any significant sacrifices!
That will equal about $520 extra for that year!
Step 2- Save an extra $10 per week/$40 a month!
2. Increase Your 401K Withholding
The contribution limit for 401K’s has increased in 2018 by $500!
So what does that mean?
That means it’s time to reset your 401K withholding so that you can put an extra $500 in your retirement account.
Depending on your annual salary, this is typically only a 1% increase from what you are already contributing.
It is worth it! Another $70 thousand a year you say?
Sign me up.
3. Taxes Can Be Helpful
There are more benefits than just having money for retirement when you contribute more to your 401K and Roth IRA.
Another benefit being taxes!
Again, if you are a worker in the 24% tax bracket, even just a $2000 IRA or 401K contribution can save you close to $500 when tax season rolls around!
Which, in turn, give you an opportunity to save even more money for retirement with less taxes due every year.
Income tax isn’t due on your account contributions until the day you withdraw from them- take advantage of the savings now!
In addition, depending on your annual income, you also have the opportunity to claim savers credit!
You are eligible for a savers credit if you earn up to $31,500 annually, as an individual. $47,250 as a married couple!
This tax credit applies to the amount you contribute to a retirement account per year. Meaning you, and/or your spouse, is eligible for an additional $2 thousand- $4 thousand tax credit!
In addition, given that you are now saving all of this money on taxing anyways- consider putting a portion of your tax refund into Roth IRA savings as well.