Retirement planning isn’t as straightforward as it may seem. There are several different ways to grow your savings and maximize your investments but navigating all the intricate details of multiple accounts can get overwhelming. That’s why working with an experienced financial advisor is recommended. Financial advisors can give insight as to how make the most out of the savings you have, and how to substantially grow those savings over time. To get you started, here are a few of the best strategies to maximize your IRA contributions.
1. Begin as Early as Possible
The sooner you begin making contributions to both traditional IRAs and Roth IRAs, the better. The longer your accounts are compounding, the higher the value of your assets. Your IRA balances will, therefore, have a snowball effect, especially when you start early and contribute as much as possible each year. You don’t have to max out your contributions to benefit from this. As long as you’re consistent, you’ll benefit from the compound growth. If you’re over 40 and don’t have an IRA, don’t worry. It’s never too late to get started.
2. Name a Beneficiary
When you set up your IRA account, make sure that you include a beneficiary. This helps you avoid any risk that your IRA is subjected to certain fees while reducing the vulnerability of your assets to creditors. Naming a beneficiary can help maximize your IRA contributions as it allows for the best compounding effects. There are also certain loopholes for beneficiaries to use money in your IRA, especially if they’re disabled, chronically ill, a spouse, or similar in age. Beneficiaries are a good way to deter or change distribution requirements in IRA accounts. There’s minimal effort required when adding a beneficiary, so it’s well worth taking a few minutes to consider when setting up an IRA with your financial advisor.
3. Diversify Your Portfolio
Your investment portfolio is more than just your IRA accounts. If you want to get the most out of your efforts, talk to a financial advisor about how to best diversify your portfolio. This gives you opportunities to increase your taxable deductions, lower your payments, and more. Diversification is especially important if you’re maxing out your IRA contributions yearly and are looking for an additional way to grow your net worth. If you have a 401(k), make sure you utilize any company matching and the proper risk strategy. The best way to create a diverse investment portfolio that meets your needs and financial situation is to work closely with an experienced financial advisor like William Bevins.
4. Don’t Wait Until Tax Day
Some people wait until filing their taxes to make an IRA contribution. Avoid doing this. Instead, try to contribute to your IRA early in the year. This gives your contributions a better chance to grow. Making a contribution on or near Tax Day also puts you at risk for higher market values, which can reduce the impact of your investment over time. To ensure that you’re financially able to make consistent contributions, consider utilizing smaller monthly investments throughout the year. You may be able to have this directly pulled from your paycheck to help maximize your IRA contributions without even thinking about it.
5. Consider Individual Stock Investments
You can also invest in individual stocks, such as mutual funds. Mutual funds are considered IRA investments and are, therefore, a great way to maximize your IRA contributions without penalty. They’re easy to manage and can increase the diversification of your investment portfolio. When done strategically, individual stocks can help you achieve higher rates of returns on your investments, but it does require more work. If you’re not familiar with these types of investments, make sure that you discuss your questions or concerns with a financial advisor.
6. Rollover to a Roth IRA
If you’re currently contributing to a traditional IRA, consider rolling over to a Roth IRA or at least splitting up your contributions. Whether this is beneficial will depend on your adjusted gross income and future plans. Roth IRAs are great for those who expect to be in a higher tax bracket when they retire, thus making the taxable contributions favorable to withdrawals that are taxed in a traditional IRA. You can convert as much of your traditional IRA into a Roth IRA, and there are no restrictions for those making a higher adjusted gross income (AGI). By converting traditional IRA money to Roth IRA money, higher earners can get around the limitations of direct Roth IRA contributions. Similar strategies are available with 401k to IRA rollovers too. You will need to pay any income tax on money that’s rolled over and if you’re unsure of how to do this or why it’d be beneficial, speak with William Bevins today.
7. Max Your IRA Contributions
One of the best ways to maximize your IRA contributions is to invest until you hit the legal cap on contributions. You can invest up to $6,000 in your Roth IRA every year up to age 49 and $7,000 if you’re 50 or older. This allows you to get the most out of your investments over time, as higher balances will build interest more quickly. There are a few stipulations to Roth IRA contributions, especially for individuals or joint filing households exceeding a certain income. You can also contribute to a traditional IRA, but some of your contributions may not actually be tax-deductible. This varies based on filing status, adjusted gross income, and the allowed tax deduction for each bracket. If you have any questions about your IRA contribution limit, contact William Bevins today.
Making sure that you’re prepared for retirement doesn’t have to be overwhelming. There are plenty of great strategies to maximize your IRA contributions. If you’re hesitant to start or simply don’t know which course of action is best for you, contact William Bevins today. As an experienced financial advisor, he’ll help you get the most out of your investments and plan for a comfortable retirement. To schedule a free consultation, call the office of William Bevins today at 615-469-7348.