5 Ways Contribution Limits Can Maximize Your Retirement Living

No matter how much we love our professions and working lifestyle, we all begin looking forward to retirement at some point during our careers. The type of retirement you imagine probably looks different from another person's. You might imagine traveling the world, focusing on your hobbies, or caring for grandchildren. The amount you will need to support yourself during retirement depends greatly on your desired lifestyle and the age at which you retire. No matter the type of retirement you imagine, you can take steps to maximize savings in order to achieve the best possible outcome for your retired years.

  1. Limits Increase Steadily Over Time - If you have an IRA, traditional or Roth, use the IRS's contribution limits to steadily increase the amount you save over time. Contribution limits for both types of accounts have increased since 2002, when they were at $3,000 (age 49 and under) and $3,500 (age 50 to 70 1/2). In 2018, these limits are at $5,500 and $6,500 respectively. According to The Balance, the IRS bases contribution increases on the rate of inflation, increasing the limits in $500 increments. Continued inflation is a pretty safe economic bet.
  2. Catch Up Contributions - If you are age 50 or over, then you might qualify to make annual catch up contributions. From 2018 to 2015, the IRS allows you to make a catch up contribution of up to $1,000 before the due date of your tax return.
  3. Save Tax-Deferred Dollars - A traditional IRA allows you to contribute money before paying income taxes. Depending on your current tax rate, this could mean hanging onto and earning compounding interest on a sizable amount of cash which, otherwise, would be turned over to the IRS come April 15th. You will, of course, owe income tax once you begin taking distributions from your traditional IRA, but most retirees fall into a lower tax bracket at retirement than they do during the peak of their careers.
  4. Leverage Tax Deductions - Depending on yours and your spouse's financial situation, you might be able to deduct the contributions that you make to your traditional IRA. Leverage the tax dollars you save by investing them, creating an emergency fund, or paying off high interest debt. Compare interest rates on debt and earnings estimates on investments to decide which will be the more financially savvy choice, in the long run.
  5. Diversify Savings and Investments - If you already have a work-sponsored retirement account, such as a pension, an IRA provides another option to increase savings for your retirement living. If you have income available for retirement savings that exceeds the IRS's annual contribution limits, then consider diversifying the types of savings accounts and investments you hold. Sometimes too, it is prudent to maintain a savings account intended for retirement that is also easily accessible in the event of an unexpected financial emergency.

Learn more about products that may help to maximize your retirement savings to accommodate the retirement living you want for you and your family.

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