You save diligently for retirement, and you’re eager to contribute even more. But sometimes the rules for IRAs, 401(k)s and other tax-advantaged retirement-savings plans can hold you back. You may hit an annual contribution limit, or your income may be too high to allow you to contribute to a particular type of account.
Here are eight lesser-known tactics you might be able to use to maximize your retirement savings:
1. Double your retirement-savings plan contributions if you work in a qualifying profession. Under a special opportunity available to some public school teachers, health care workers, and other nonprofit and public-sector employees, you can contribute up to $17,500 in 2014 to a 403(b) plus up to $17,500 to a 457.
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2. Stash more money in your retirement plans once you turn 50. Whether you’re catching up or getting ahead, take advantage of this savings perk for people 50 and older. In 2014, add an extra $1,000 to your Roth IRA or traditional IRA, for a total contribution of $6,500. You can also make catch-up contributions of $5,500 to your employer’s 401(k), 403(b) or 457 plan.
3. If you have income from self-employment, save for retirement in special savings plans (even if you have a full-time job and an employer-sponsored 401(k), too). The two best retirement-savings options for most self-employed workers are a solo 401(k) and a Simplified Employee Pension (SEP). You can make tax-deductible contributions to either plan, and the money grows tax-deferred until retirement. With a SEP, you can contribute up to 20% of your net self-employment income, with a total contribution limit of $52,000 for 2014.
4. Navigate around the income limits of a Roth IRA. Saving in a Roth, as opposed to a traditional IRA, will enable tax-free withdrawals in retirement. But for 2014, direct Roth contributions are banned for singles with adjusted gross income over $129,000 and couples filing a joint return reporting AGI over $191,000. But there’s no income limit on nondeductible contributions to a traditional IRA or for converting one to a Roth. And there’s no legal requirement for how long the money needs to be in the traditional IRA before moving it to a Roth. So you can contribute to a traditional IRA and immediately convert it.
5. Take control of your 401(k). You might feel as if your nest egg is really making progress, thanks to being automatically enrolled in your company’s 401(k) plan -- with automatic annual increases in your contribution rate. But the 3% default contribution rate favored by employers doesn't come close to the savings rate needed for a secure retirement -- roughly 12% to 15%, experts say, including both worker and employer contributions. A 3% contribution isn't even enough to get the typical employer's full 401(k) matching contribution, meaning that many workers are skipping the only free money they'll ever see.
6. Claim the tax credit for lower-income retirement savers. The credit is 10%, 20% or 50% of your contribution to a retirement account, depending on your income, up to a maximum of $1,000 per person or $2,000 per couple. You can qualify for the retirement savers’ tax credit if your adjusted gross income in 2014 is $60,000 or less if married filing jointly, $45,000 or less if filing as head of household, or $30,000 or less if you’re a single filer.
7. Open a health savings account (HSA) as another vehicle in which to save tax-free for retirement. Available to people with a high-deductible health plan, an HSA can be a powerful financial tool to cover medical expenses and save for the future. An HSA gives you a triple tax break: Your contributions are sheltered from income taxes, the money grows tax-deferred, and the funds can be withdrawn tax-free for medical expenses. There’s no deadline for making a withdrawal; you can pocket the money in retirement to reimburse yourself for medical costs you incur now, as long as you keep records of past bills. You can even use tax-free HSA money to reimburse yourself for the money that Social Security withholds from your benefits to pay for Medicare Part B.
8. Stretch your nest egg even further by planning your retirement in a state that doesn’t tax certain types of retirement income. There are some states that don’t tax Social Security benefits; others don’t tax pension income. And seven states have no income tax at all. While your choice of retirement destination won’t help you save more during your working years, it can help you keep more of your nest egg in retirement.
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