3 Retirement Savings Tips to Consider Before Year End

by Drew Snider, CFP®

Director, Financial Planning, Coastal Credit Union, Financial Advisor, CUSO Financial Services, L.P.

11.24.2021
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Articles

TIP 1: Consider a Roth IRA

What’s the biggest impact you can make towards retirement? Having a Roth IRA and Roth 401(k). Why? It’s all about the taxes. Your contributions to either Roth option are after-tax, which means the IRS allows your investment to grow tax-deferred. And at age 59.5, you get to withdraw that money tax-free.  So, say you made an investment of $10,000 that over time grows to $100,000. You only had to paid taxes on the $10,000 and, as a retiree, you could withdraw the full $100,000 without paying any tax.

Why think about this at the end of the year? In order to contribute to a Roth IRA your income has to fall under a certain limit and by December you should have good idea if you qualify to make a Roth IRA contribution. It gets better, once you determine you can contribute, you have until the tax filing date of the following year to make your contribution.

If your income is above the IRA maximum, then you can look to your 401(k) plan at work to see if it offers a Roth contribution option. If so, your year-end task is to consider changing your contribution for next year.

TIP 2: Increase Your 401(k) Retirement Plan by 1%

Many of us contribute a percentage of our pay to our workplace retirement plans, like a 401(k). When was the last time you increased your contribution? Still putting in 3% to get the 3% match? 

Well, your year-end action item is to increase your contribution by 1%. Even better, if you plan has the option to automatically increase it each year by 1% consider checking that box! Data shows a worker who opts into the 1% auto increase will have twice as much in their account after 30 years than a person who keeps the same 6%. 

TIP 3: Max Out Your Health Savings Account

If your medical insurance plan is classified as a High Deductible Health Plan, you have the option to contribute to a Health Savings Account (HSA). The basic premise is your insurance premiums will be lower, giving you disposable income to save in the HSA that can be used for future medical expenses. To encourage more HSA contributions, the IRS made the tax advantages extra sweet. You can deduct your contributions to the HSA and allow the earning to grow tax deferred. Then, when you use the savings for a qualified medical expense, the distributions are tax-free. That’s a triple tax advantage!

Your year-end task is to confirm that you have a High Deductible Health Plan and make sure you are taking advantage of the triple tax benefit by contributing the maximum. Don’t worry though, you have until the tax filing date next year to make your contribution.

Learn more about why you should consider a Health Savings Account.

BONUS TIP 4: Get Your Free Retirement Plan Review

As a Coastal member, you can connect with one of our CFS* Financial Advisors to schedule your free retirement plan review. We’ll go beyond the tips to assess your current retirement income strategies to see if you are on track to being retirement ready.

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© 2021 Broadridge Investor Communication Solutions, Inc.

*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. ("CFS"), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. Coastal Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.

Trust services available through MEMBERS Trust Company. CFS and Coastal Credit Union are not affiliated with Members Trust Company.