We all know that we should be putting aside a portion of each paycheck for retirement. Setting up a direct deposit to a savings or investment account can help make sure that we don’t forget to save every month. However, once you start saving, there are many other things you can do to help grow and protect your nest egg. Here are 10 savings strategies that will help you build wealth for retirement.
1. Tax-deferral on retirement savings.
You can defer paying income tax on money you save for retirement in a 401(k) (up to $18,000) and IRA (up to $5,500). Workers age 50 and older can temporarily exclude from tax an additional $1,000 in an IRA and $6,000 in a 401(k). Income tax won’t be due on this money until you withdraw it from the account. And if you will be in a lower tax bracket in retirement, you can reduce your lifetime tax bill by saving in traditional retirement accounts.
2. Set up tax-free retirement income.
You have already paid the income tax on money you contribute to a Roth IRA and Roth 401(k). The money will accrue without taxes while in the account, and if you take distributions after age 59 1/2 from an account that is at least 5 years old, you won’t ever have to pay tax on the investment earnings. “If you put the money into a Roth and pay taxes now, then the money that you gain is tax-free,” says Austin Chinn, a certified financial planner for Fountain Strategies in San Jose, California.
3. The myRA.
A new type of Roth retirement account, the myRA, guarantees that your savings will never decline in value. The only investment option is a Treasury savings bond that pays a variable interest rate. However, when investors accumulate $15,000 or the account turns 30 years old, your savings will be transferred to a private sector Roth IRA.