How much do you have saved for retirement? If you’re an employee, you probably have a 401(k) or other sponsored retirement plan, but you don’t have to stop there—there’s more to retirement savings. Depending on your annual income, there are different types of retirement vehicles. One that is often overlooked by many young professionals and self-employed entrepreneurs is the Roth IRA.
A Roth IRA is an individual retirement account that allows you to use after-tax dollars to fund life during retirement. The tax-free factor provides a tax-free stream of income (including gains) when you retire. It’s important to take advantage of this when you’re younger because this tax-free retirement vehicle is not available to you after you reach a certain income threshold.
The IRS also raised the annual Roth IRA contribution limits from $ 5,500 in 2018 to $ 6,000 in 2019 (for individuals under 50). That means you can contribute $ 6,000 to retirement this year and enjoy the benefits of tax-free withdrawals when you retire. If you contribute $ 500/month, you can max out your retirement account goals in 12 months. That adds up to a retirement savings goal of $ 125 a week! Below, are additional steps you can take to reach your retirement goals this year.
Reach Your Retirement Goal in 2019:
Make it Automatic
Are you disciplined enough to automatically set aside a specific dollar amount or percentage of your money and allocate it toward retirement every time you get paid? Most people aren’t. And there’s no point in adding another task to your to-do list when you can automate it. All you have to do it set up recurring transfers from your checking account to your retirement account to ensure you are consistently making contributions.
Allocate Lump Sum Payment Amounts Wisely
Are you going to receive a year-end bonus, tax refund, or another fat check? Have a plan for your money or it can quickly disappear right before your eyes. You can use this money to jump-start your retirement goals, which will decrease the amount of money that you have to save monthly to max out your Roth IRA retirement contributions.
Invest Your Spare Change
Don’t abandon your pennies because they are the foundation of nickels, dimes, quarters, and dollars. A little can go a long way if you are consistent. Your spare change can be used to build your retirement savings. You can use apps that help you invest your spare change, or you can do it yourself.
Manage Income and Expenses
If you’re strapped for cash, you need to decrease your bills or increase your income. Knowing where your money goes will help you determine which expenses are necessary and which can be cut. If you want to increase your income, do yourself a favor and accumulate profitable skills or find ways to profit from your passion as a freelancer or small business owner. A work promotion or a salary increase can also give you something extra to add to your retirement savings.
Take Advantage of the Saver’s Credit
According to the Transamerica Center for Retirement Studies annual survey, only 12% of American workers who meet the income requirements are aware that they can take advantage of this retirement benefit. The Saver’s Credit was designed to reward low- and moderate-income taxpayers for their retirement contribution. What’s the benefit? This credit can reduce your tax bill or allow you to eliminate it.
The best thing you can do right now to prepare for retirement is to start now. Although retirement may sound like it’s eons away, you should get started right away or risk being left behind scratching your head while retirement creeps up on you.
Black Enterprise Contributors Network
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