11 Retirement Planning Strategies to Jumpstart 2019
1. Up Your Retirement Contributions
The start of a new year is the perfect time to set new goals and save more. In 2019, you can contribute more than ever into your retirement accounts. Total contributions increased by $500, now totaling $19,000. If you are expecting a raise, bonus, or are able to sock away a little extra, consider upping your contributions this year to take full advantage. Don’t forget that even the little increases can have a large impact in the long run.
2. Make catch-up 401(k) contributions
Anyone over or turning 50 years old this year can make catch-up-contributions. That means you can add an extra $6,000 to your 401(k), maxing out at $25,000. If you are turning 50 in 2019, it doesn’t matter when your birthday is, you can start making these catch-up contributions anytime. Think of it as a birthday present to yourself—you’ll be thankful you took full advantage later on.
3. Go Roth 401(k)
There can be great benefits in contributing to a Roth 401(k) vs. a traditional 401(k). Traditional accounts are pretax and grow tax-deferred until retirement. Then, they are subject to taxation. Roth contributions have no immediate tax break – but once they are rolled into a Roth IRA, you won’t pay taxes on your distributions.
Roth 401(k)s have no required minimum distributions (RMDs) once you hit age 70 ½. Another thing to keep in mind is that Roth IRAs have limited contributions, whereas a Roth 401(k) will not. If most of your savings are in a traditional 401(k) or IRA, consider diversifying and making your 2019 contributions to a Roth 401(k). Ask your employer about switching contributions – it’s an increasingly more common option.
4. Don’t forget after-tax 401(k) contributions
You might be able to make after-tax contribution to your 401(k). Many plans, both traditional and Roth, allow for the contributions to help you reach the $62,000 limit
HR departments often don’t mention this option because not many people are able to take advantage of it. If you earn a large bonus or commission checks or are living within your means, this might be a good fit for you. Then, once you retire or separate from service, you can roll over most of this money into a Roth IRA.
5. Take the time to review
It’s a good idea to review your 401(k) investments with your fiduciary financial advisor each year. They can help to make sure your contributions are still in line with your goals, evenly distributed, your risk is frequently re-evaluated, your cash flow needs, etc. Even if you have a rebalancing feature on your portfolio, it never hurts to double check. Most people don’t think about this as part of their annual review, but we review our clients’ 401(k)s in our annual meetings. Many things can influence your 401(k) contributions, like the economy, investment options, or changes in your own life.
6. Do you have a side hustle?
If you have multiple sources of income, consider various retirement plans, a SEP plan or a cash balance profit-sharing plan. SEP plans could allow you to contribute up to $255,000 each year, depending on your age and income. You have lots of options, but they can quickly become complicated. Ask your financial advisor to go over your options if you are earning multiple incomes.
7. Max out your IRA contributions
Don’t forget your annual IRA contributions! As long as you or your spouse are earning an income, you can contribute $6,000 into a traditional or Roth IRA. Anyone over the age of 50 can contribute up to $7,000. Ask your financial advisor about building out your Roth IRA – either by meeting the income requirements or making a “back door” Roth conversion.
8. Include a health savings account
Do you have a health savings account (HSA)? These are not well known or utilized, but have triple tax-free benefits. Basically, you can take tax deductions when funding the plan, the money grows tax-free and is not taxed on withdrawals when used for health care expenses.
In 2019, a family can contribute $7,000 towards an HSA and individuals can make $3,500 in contributions each year. An HSA acts as a Roth IRA for health care costs—the money is tax-free after the age 65 when used for medical care. If you don’t use this money for medical care, then it is taxed similarly to a traditional IRA. But you will most likely have more and more medical expenses as you grow older, so this should not be a concern
You cannot contribute unless you have a high deductible medical plan and only before the age 65. If you are contributing to an HSA, make sure they match your time horizon and focus on the account is you plan to use it for medical expenses in retirement.
9. Consider Roth conversions
Especially when the market drops or in low-income years, Roth conversions can be a really good idea.
Roth conversions allow you to convert all or some of your traditional IRA into a Roth – tax-free growth in the future with no RMDs. Just a reminder, the 2018 tax law eliminated the ability to “recharacterize” a Roth IRA. So, no do-overs if you change your mind. Roth conversions are best left for the end of the year once you have a better idea of what your income will look like.
10. Roll old 401(k)s into IRAs
Are your old 401(k)s consolidated and rolled into IRAs? If not, it might be time to roll them over. Not only is it easier to track your performance, you might even have more investment options and be able to avoid some fees if your new balance exceeds a certain threshold. Talk to your financial advisor to see if this is the right option for you.
11. Design a comprehensive financial plan
Are you on track to reach your retirement goals? Do you need to make any changes? The ups and downs of the market are easier to manage if you have a solid plan to follow. If you are unsure, it might be a good idea to review your portfolio with a financial advisor annually. We encourage all of our clients to put together a plan that reflects their family goals and priorities and is achievable and measurable.
You have the potential ability to contribute up to $69,000 + $7,000 to an HSA in 2019. If you have multiple sources of income, there are even more options for you. The markets will always be uncertain, but you can always get ahead and have some peace of mind by designing a financial plan with your fiduciary advisor.