You know that it's important to save for your future, but it can be difficult to know how much money to divert to your retirement account each year. Take these six steps – or at least two or three of them – and your nest egg can grow exponentially larger over the years, thanks to the power of compounding interest.
Make the maximum contribution to your retirement fund. For 2016, the maximum allowable contribution is $18,000. Are you on track to save that much this year? Take a look at your most recent pay stub, and multiply your weekly contribution by 52 (or 26 if you're on a bi-weekly pay schedule). Will you make the maximum contribution this year? If not, increase your payroll deduction accordingly.
Take advantage of your company match. Some people can't afford to save the maximum each year, but you should at least take advantage of your entire company match amount. This is basically free money, so don't turn it down!
Put your raise toward a good cause. When you receive news of a raise from your employer, immediately adjust your payroll withholding (unless you're already contributing the maximum). Divert half of the raise to your retirement fund. You will be better prepared for retirement, but you can still enjoy the other half of your raise.
When you turn 50, start making catch-up contributions.At this point in your career, you have probably reached your earnings peak. You can also contribute an extra $6,000 per year to your retirement fund, so take advantage of the extra opportunity for savings. You'll reap additional tax benefits as well.
Fund an Individual Retirement Account (IRA). Once you're contributing the maximum amount your 401(k), you can save additional funds for retirement by opening an Individual Retirement Account (IRA). You can set aside $5,500 in your IRA each year, on a taxes-deferred basis. This amount increases to $6,500 each year after you reach age 50.
Remember to claim your Saver's Credit. If you're eligible for the Saver's Credit, you can earn a federal income tax credit between 10 and 50 percent of your retirement plan contributions. If you stash your income tax refund in your account, you can multiply your savings next year.
For more information on saving for retirement, give us a call. We can discuss your options and help you put together a plan that helps you prepare for the future.
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