Retirement is one of the biggest milestones in one’s life, yet so many don’t pay much attention to retirement accounts. It is not unusual to hear individuals say they toss aside their 401(k) statements because they feel like they can’t do anything about it. That couldn’t be further from the truth. If you work with Avantax Planning PartnersSM
and an affiliate firm, we can help individuals understand their retirement accounts, but more importantly create a financial plan that is in line with retirement goals.
Together, our team can review contributions and investments. In fact, we recommend reviewing at least annually…consider it an annual health check-up with your physician. Taking the time to focus on your health gives you the opportunity to adjust eating or exercise habits to ensure your body can sustain you for the years to come. The same could be said for retirement accounts. It is equally important to make sure your retirement savings will sustain your lifestyle for years to come.
Below are items to consider with both your CPA and Avantax financial planning consultant:
Increase your contribution amount
The limit for 401(k) plans change annually and is currently $19,500 for pre-tax contributions. If this is significantly higher than the amount you are contributing today, consider increasing your contributions a few times during the year if your plan allows it. That way, the difference in your paycheck may not be so noticeable. If you are age 50 or older, you may contribution an additional $6,500 as a catch-up contribution.
Roth vs pre-tax deductions
If you are currently in a lower tax bracket, consider taking advantage of your plan’s Roth feature rather than selecting pre-tax deductions. A Roth feature allows you to grow your savings over your working years and avoid taxes on your savings later.
Take advantage of your company’s match
Make sure you are contributing enough to your plan to take advantage of your company’s match. This is extra money that will grow over time to help you build up your account. Don’t leave this money on the table. It is an added benefit that your employer provides as an incentive for you to save for your retirement.
Some retirement plans offer the opportunity to take a loan. Resist the urge to borrow from your future. In doing so, you’ll lose the effect of compounding interest with the unpaid loan balance.
Checking for alignment
Review the investments you are putting into your retirement. Do they provide you with the right mix of stocks and bonds to help with continuous growth over your working years? Some plans automatically rebalance to keep your selected mix of investments in line, but others don’t. You may need to adjust your investments to keep them aligned with your financial goals and risk tolerance.
Take some time and do an annual check-up with your retirement plans and make sure you are set up for the growth you need to achieve your retirement goals. Talk to your trusted accountant to start a conversation with an Avantax financial planning consultant who can help determine the best plan for you.