When it comes to the act of retirement planning, believe it or not this is one place where you can actually “save even more money” while “saving money”!
(Yes, you read that correctly.)
What am I talking about?
The IRS likes it when we take it upon ourselves to save money for retirement.
As a result, they give you a lot of advantages that you wouldn’t normally get with other savings goals.
In addition to saving for retirement, these advantages can also be useful in making the right choices about where and how to put your money.
With that said, here are 21 ways to save and invest for retirement – better than you can imagine!
1. Participate in your 401(k).
If your company offers one, save your money in a 401(k).
One of the biggest advantages the IRS gives us in saving for retirement is that we get to do so tax-deferred. This means that we can save the money NOW without paying taxes on it, and then pay the taxes many, many years later once we finally take it out for retirement.
Though that may not sound like a big deal, it REALLY is! How so? Basically, for every dollar you save in a tax-deferred account, you would have normally paid 22 cents of it in taxes (assuming you’re in the 22% tax bracket). That means you’re saving ($1 – $0.78) / $0.78 = 28% more with the tax deferred account!
To illustrate that point further, if you can manage to save all the way up to the IRS annual limit of $18,500 per year, that’s $5,218 in taxes that you get to keep! How awesome is that!
2. Get your full 401(k) employer matching.
Chances are that if your employer offers a 401(k), then they probably also will offer you a 401(k) matching as well. This is when your employer kicks in money alongside your contributions. It may be 25 cents per dollar, 50 cents per dollar, or even dollar for dollar!
No matter what it is, consider it free money! Even if your employer gives you a few thousand dollars in comparison to what you save, that’s still tax-free money that is only going to help your fortune grow that much more. Get in contact with your HR department and learn exactly what the rules are to get your full amount. DO NOT leave any money on the table!
3. Setup an IRA.
A 401(k) is not the only way you can take advantage of tax-deferred savings. If you meet the IRS qualifications for contributing to an IRA, setup an account to get even more tax-avoidance. Either a traditional or a Roth IRA is fine.
4. Contribute to the 401(k), then the IRA, then 401(k) again.
If your employer does not match 401(k) contributions (or only contributes a small amount), max out the IRA before putting more in your 401(k). IRA’s have fewer fees than 401(k)’s.
5. Pick cheap funds.
Just like all things, investments come in a variety of price ranges. To keep the most amount of money in your pocket, choose funds with low expense ratios. There is no need to pay more than 0.5% on a mutual fund these days.
6. Setup your own IRA.
Skip the middle-man when it comes to setting up an IRA and go online.
7. Use an online investment broker.
In fact, no matter if you’re investing for retirement or just for fun, don’t use a brick and mortar investment broker. Use a discount provider from online like Vanguard to handle your IRA.
Bonus tip: If a life insurance broker tries to tell you that one of his products is a great investment opportunity, don’t believe them. Click here to read my story and learn why your insurance needs and investment needs should be kept separate.
8. Buy index funds.
Skip getting advice from an adviser. When it comes to investing, simple index funds (like ones that follow the S&P 500 and Long Term Treasury Bonds) will work just fine.
9. Use fee only advisers.
If you do decide to use an adviser, make sure they are fee only.
10. Make sure the adviser is a fiduciary.
Not all financial professionals have to act in your best interest. To get one that does, make sure you pick one that is registered as a fiduciary. These means they will legally have to act on your behalf (instead of their own agenda).
11. Resist trying to win big with stocks.
Avoid the temptation to try your hand at picking stocks. I’m sorry to tell you this, but you are not the next Warren Buffet. Again, stick to those index funds.
12. Buy stocks for less.
Okay, so you didn’t listen to me and you really want to buy stocks. If so, again, skip the brick and mortar locations. Use an online discount broker like Fidelity and pay no more than $10 per trade.
13. Get free trades.
Some companies will even give you free trades as part of an introduction deal or if you hold a certain amount of assets with them.
14. Buy stocks within your IRA.
Or if you really want stocks, buy them within your IRA. You likely won’t have the same commissions and taxes you’d otherwise owe.
15. Don’t make withdrawals from your 401(k) or IRA.
Don’t pull money out of your 401(k) or IRA until after age 59-1/2. Otherwise, you’ll pay taxes and a 10% penalty.
16. Don’t borrow from your 401(k).
You’ll be taking away from assets that could be building up thanks to compounding returns over time.
17. Move your IRA contributions to make them tax-free.
If you make too much to contribute to a traditional IRA, make non-deductible contributions and then convert them to a Roth. Your earnings will then be tax-free in the future.
18. Get a Spousal IRA.
If your spouse isn’t working and you meet the requirements, contribute to a Spousal IRA.
19. Take the required minimum withdrawals.
If you’re age 70-1/2, take your required minimum withdrawals and avoid a 50% penalty!
20. Wait to take Social Security for as long as possible.
Be careful of when you start taking Social Security. Generally the longer you wait, the more you get.
21. Take care of your spouse when it comes to Social Security.
Don’t forget to select the Social Security option that pays your spouse even if you pass away. Though you may get less now, your spouse will benefit.
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These are great ideas!
My situation is a little weird since I’m a contractor and don’t get employer benefits. I ended up setting up a Roth IRA with my bank and I contribute $200/mo on it. Unfortunately I’m still not maxing it out, which sucks, but that’s what works for our budget. My line of thinking with the Roth is that I expect my earning potential to increase over time, putting me in a different tax bracket in the future. I like that the taxes are already paid upfront so I can withdraw my money worry-free.
Good for you for setting up the Roth! Roth’s have a lot of other useful benefits like possible early withdrawals (important if you have any ambitions of retiring early at any point), no minimum required distributions (when you’re over 70), and they can be more easily passed on to your heirs someday. You’ve got the right idea by setting this up based on what your tax situation is now and what you think it will be in the future.