Retiring when you choose and being confident that you have enough savings can be a volatile proposition.
With inflation lingering and fewer employers planning to raise salaries this year, many Americans are struggling to save for their so-called golden years. Some people have raided their retirement accounts in case of unexpected emergencies over the past year.
The highest percentage of Vanguard 401(k) holders had their accounts raided in 2023. Rising costs of living such as medical expenses, food costs, and rent may have been a trigger for the looting.
But there are strategies you can start now to continue building your retirement savings and future financial security.
Make sure you have at least enough socks to fit into your employer's 401(k)
“If you have a 401(k) or 457 or 403(b), you typically receive matching contributions. [from your employer],” Cary Carbonaro, senior vice president at Advisors Capital Management, told Yahoo Finance's Wealth! (video above), “And it's free money. Take advantage of it. Step one is to make the most of your current retirement benefits at work.”
If you don't have one, you can open an Individual Retirement Account (IRA). “But no matter what, it has to be set up and it has to be on autopilot,” she added.
Tax saving strategies for non-retirement accounts
Laurence Sprung, founder of Mitlin Financial and author of Financial Planning Made Personal, explains that loss recovery is “looking at an investment that has the potential to incur a loss, and assuming that loss to make a profit.'' It's about offsetting,” he told Yahoo. Financial wealth!
“At the end of the day, it's all about how much money you keep after paying the taxpayers, not after you sell your investments,” he said. “And by selling some of your losses to offset those gains, you end up keeping more of your hard-earned money and the growth you've accumulated in non-retirement accounts. It will be.”
However, this strategy only works with taxable accounts, such as brokerage accounts. Although losses can be collected to offset gains on various types of assets, retirement accounts such as 401(k)s and IRAs do not offer the benefit of recovering losses.
This is because these accounts are tax deferred, so you won't pay capital gains on any trading activity that earns profits or pays dividends in these accounts. In other words. You can't sell investments at a loss in your 401(k) or IRA to offset capital gains in your taxable account.
consider a charitable donation
For retirees who are already taking required minimum distributions (RMDs) from an IRA or workplace plan, now is a good time to focus on your retirement account management moves in 2024, as taxes are a top priority right now. is. That will have a direct impact on the next tax bill. April.
A jump in retirement account balances last year could mean that your RMDs, which are typically taxed as ordinary income that year, could be larger than the amount you withdraw in 2023.
“My favorite tip for retirees is something called a QCD, which is a qualified charity,” Carbonaro said.
These charitable contributions from retirement accounts count toward RMDs and can be excluded from gross income up to $100,000 per year.
If you don't need the cash from your RMD to cover your living expenses and already donate to charity, you can have your required minimum distributions donated directly to charity, Carbonaro said. “The charity wins and you win because you don't have to pay taxes to that charity. In reality, everyone wins except the taxman.”
There is one caveat. The 1099 form does not indicate that the distribution was given to a charity. As an IRA owner, you will need to communicate with your accountant and make sure they understand that distributions should not be included in your income.
The transaction must be completed by the end of the tax year. You can have your custodian or retirement plan administrator send your withdrawals directly to a qualified nonprofit organization so that they are not included on your personal tax return.
The charm of early retirement
One misconception about early retirement is that it's impossible, Sprung says.
“People have this conceptual idea that they have to work until they're 62 or 65, which is like a retirement age that's created for us, but that's not true,” he said. Told. “If you start early enough, invest wisely, and take the right and wise financial steps, you can retire much earlier than the predetermined retirement age that everyone thinks.”
Kelly Hannon is a senior columnist at Yahoo Finance. She is a career and retirement strategist and the author of 14 of her books, including “The World's Best.''Taking Control Even Over 50: How to Succeed in the New World of Work.” and “You’re never too old to get rich.” Follow her on X @Kellyhannon.
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