Saving early and often is a time-tested strategy to profit from compound interest in your retirement accounts. For the first time in six years, limits for IRAs (Individual Retirement Accounts) have been raised, creating an enticing savings opportunity for those who want to increase their contributions while reducing their taxable income.
Both IRAs and 401(k) accounts have been increased by $500 in contribution maximums for 2019. This boost in plan limits makes it an ideal time to start a retirement plan or increase your contributions to an existing plan. Contributing the full amount allowable to a retirement plan will maximize your taxable income savings and also increase your compound interest earnings potential.
Check out the table below for the updated retirement plan 2019 limits:
What is the best way to benefit from these higher retirement plan contribution limits? Here are several ideas to consider:
Contribute a raise or bonus. A great time to contribute to a retirement plan is when you receive a raise or bonus. It allows you to take some or all of the additional income and invest in your future without changing your current lifestyle. Your investment will go even further if your employer offers a plan that matches your contribution.
Cut your spending. Start by reviewing your ongoing expenses and creating a budget. Then look for ways to reduce your spending on day-to-day expenses such as food or utilities. Some ideas to lower food costs are bringing lunch to work, skipping the coffee shop, limiting dinner out at restaurants, and shopping at less expensive grocery stores. Maybe you have a subscription you can cancel or a service provider you can contact to negotiate a lower rate. Use the money you save from cutting expenses to help fund your account.
Add a side gig. Consider picking up some side income with a part-time job. Whether it’s a retail job on the weekends or starting your own small business, the additional income might be enough to meet your savings goal.
Automate your contributions. Most plans offer a way to contribute automatically. If you have a plan through work, check to see if it has an auto-escalation feature that increases contributions over time. If you are investing in an individual plan, set up auto contributions to pull from your bank account on a monthly basis.
Taking the time to think about your retirement plan strategy increases your opportunity to profit from funding new or existing retirement accounts. Why not make the most of the tax benefits they provide? Please contact our office if you have any questions.