When it comes to saving for retirement, there are a ton of variables to consider. This list of retirement savings dos and don’ts will help set you on the path to successfully readying yourself for your golden years.
Do: Inquire if Your Employer has a 401(k) Option
Saving for retirement through your company’s 401(k) plan is the option that allows you to contribute the most to your retirement. In 2019, you can contribute up to $19,000 ($25,000 if you’re over 50) to your 401(k); That’s $13,000 more than if you were only contributing to an Individual Retirement Account (IRA). However, if your employer doesn’t offer a company 401(k), don’t worry – there are still plenty of options out there to help you save for your retirement.
Don’t: Avoid Contributing if Your Company Doesn’t Offer 401(k)s
More than one-third of all employees work for companies that don’t offer a 401(k) plan. While working for a company that offers a 401(k) option is ideal, not having one shouldn’t stop you from contributing to your retirement. There are a few ways you can still save for retirement without a 401(k).
The most popular non-401(k) retirement savings option is a Roth IRA, which you can open if you have an earned income and a modified adjusted gross income less than $137,000 if you’re single (less than $203,000 if you’re married). You can contribute up to $6,000 to your Roth IRA annually (or $7,000 annually if you’re 50 or older). Because you’re contributing to your Roth IRA after you’ve paid taxes on your income, you can withdraw your savings in retirement tax-free.
You can also contribute to your retirement by opening a traditional IRA. The contribution amounts are the same as with a Roth IRA, but there are no income limitations. However, when you opt for a traditional IRA, you must begin withdrawing after you turn 70 and a half, can’t contribute more after that time, and pay taxes on your withdrawals in retirement.
Do: Contribute to a 401(k) and an IRA in the Same Year
You’re allowed to contribute to both a 401(k) and an IRA each year. Between the two retirement accounts, you may contribute $25,000 in retirement savings annually if you’re under 50 and unmarried ($32,000 if you’re over 50). Contributing the maximum to all of your retirement accounts is a great way to work toward retirement readiness.
Don’t: Wait to Contribute to Your 401(k)
The sooner you start saving for retirement, the better. This is a tried and true fact, and saving more, earlier, could make the difference in retirement readiness. No matter how old you are, beginning 401(k) contributions now is always better than waiting any longer.
Do: Save More if You’re Self-Employed
If you’re self-employed and don’t have employees, you’re allowed to save a lot more of your income for retirement. You may set up a solo 401(k) (or one-participant 401(k), which has the same contribution maximum as a regular 401(k) – $19,000. In addition, you may contribute up to 25% of your income or $56,000, whichever is less, to an SEP-IRA.
Don’t: Assume Your Contribution Limits Don’t Change
As your situation and lifestyle change, so may your contribution limits. If you get married, transition to a stay-at-home parent role, or launch into owning your own business, the rules around what and where you can contribute may also shift. Make sure you do your retirement savings research when you make a major life change to avoid any IRS penalties.
Do: Seek Retirement Advice
Navigating all of the options when it comes to your 401(k) can be a scary prospect. Choosing your own fund lineup, knowing what to contribute, and protecting yourself from a volatile market are all challenges you may face when saving for retirement. It may pay off tenfold to seek the opinion of an expert – a 401(k) advisor – before you make any major decisions. Keep in mind, there are probably many free options under your current plan for investment or guidance as well.
Located in Denver, Colorado, Plan Strategies, Inc. is an SEC-registered 401(k) investment advisor to small and mid-sized businesses. PSI is focused on decreasing the 401(k) fiduciary risk facing employers offering retirement plans.