- There are more ways to save for retirement than through an IRA or 401k.
- Focus on not only saving money, but also on building extra streams of income for retirement.
- Reducing inventory, taxes, and fees are just as important as saving more money.
Are you lacking retirement benefits at work? Perhaps you’re already maxing out your IRA and 401(k) and are looking for other ways to save. Here are several less commonly discussed strategies to save for retirement.
Get your creative juices flowing and see how some of these out of the box methods could help you reach your retirement goals sooner.
Utilize IRS Form 8888. Did you know that you can allocate your tax refund (or part of it) to be directly deposited into up to three different investment or savings accounts? Eligible account types include traditional IRA, Roth IRA, SEP-IRA, or myRA accounts. You can also request that your refund be used to buy up to $5,000 in series I savings bonds.1
Backdoor Roth IRA Conversion. If you’re a higher income earner with adjusted gross income of $131,000/$193,000 in 2015 or $132,000/$194,000 in 2016 if you’re single/married filing jointly, then you’re restricted from contributing directly into a Roth IRA to benefit from the tax breaks. However, did you know you can now contribute non-deferred funds to a traditional IRA and then simply convert those funds into a Roth IRA each year? Keep in mind some brokers may charge conversion fees and you may owe taxes some or all of the amount converted It’s best to check with a tax advisor to see if a Roth conversion is a suitable option for you.
Treat Your HSA Like A Retirement Savings Account. HSAs or health savings accounts are tax-exempt accounts designed to help people pay for future medical expenses. Eligibility requirements include being covered under a high deductible health plan, not being enrolled in Medicare, not being claimed as a dependent on someone else’s tax return, and not having any other health coverage except what is permitted by the IRS.2 Maximum contributions to HSAs are capped at $3,350 for individuals and $6,750 for families. If you’re over 55 years old then you can contribute an additional $1,000 per year as an individual or family.
In addition to the tax benefits, HSAs have several other perks. Contributions to HSAs stay in your account until you use them, interest and earnings in the account are tax-free, and the account stays with you even if you change employers or quit working. If you do not incur costly medical expenses, you can keep your HSA funds invested and growing – tax free – until you withdraw at a later date (i.e. in retirement). Since healthcare costs can be expensive in retirement, building a balance in an HSA can come in handy if you get ill.
Withdrawals for medical expenses are always tax-free. And if you have an unused balance after age 65 or Medicare eligibility, you can then withdraw the remainder with no penalty. However, keep in mind that income taxes would be incurred like with traditional IRA distributions.3
Make More From What You Already Have. Accumulating too many belongings is a common problem in the U.S. especially since many people aren’t strapped for space unlike population dense countries like Japan where space is hard to come by. If you take a thorough look through your house and storage units chances are you can find some items you could sell online or at a garage sale. Perhaps your junk could be worth more than you think if it’s someone else’s treasure. You might also consider renting out extra space in your house or garage to earn some extra money for retirement.
Contribute to CDs or an Online Savings Account. If you want to maintain some liquidity in case of emergencies or unexpected costs, CDs and savings accounts are practical solutions that can provide cash quickly. Having access to a liquid account that is separate from your retirement accounts can help you avoid paying early withdrawal penalties and facing tax consequences from IRAs and 401(k) plans if a large unforeseen expense arises. Online savings accounts may have higher yields than bricks and mortar banks due to less overhead costs.
Get Rid Of Unnecessary Insurance Policies. As you age, you might end up with more insurance than you really need. If your children are grown and financially independent your life insurance needs have likely changed. You may also realize you don’t need as much personal property insurance. And if you aren’t driving much anymore you could consider selling your car and closing your auto insurance policy. The more you save on unnecessary premiums, the more money you can contribute to your retirement accounts.
Reduce Fees In Your Investment Accounts. If you’re not careful, all sorts of fees could be negatively impacting your retirement savings: financial advisory fees, fund management fees, front-load fees, back-load fees, commissions, account maintenance fees, etc. The sooner you can reduce the amount of investment fees you’re paying, the more money you’ll have for your retirement.
Relocate And Downsize. If you’re an empty nester you might find your four-bedroom house is becoming simply too much hassle to maintain. You may want to consider relocating to a no-income tax state or a locality with lower property taxes. Where you live can have a huge impact on how much you spend and how much you are able to save for retirement.
Consider Postponing Your Retirement. Some people find it hard to give up working when they reach their mid 60s while others wish they could quit in their 40s and 50s. If you are healthy and want to ensure you have enough money in retirement, perhaps working a few extra years is worth it. The longer you work, the more benefits you can be eligible to receive from Social Security. Plus, you’ll have fewer retirement years to finance from your savings.
Earning Income on the Side or Starting a Business. There are so many ways you can earn extra money. Think about what skill sets you have outside of your day job and consider turning your talents into a side career for extra cash. Some examples include tutoring, babysitting, dog walking, selling crafts, assembling furniture, driving for a ride sharing service, landscaping, teaching music, etc. Diversifying your income streams can provide extra financial security and more money in the bank.
Build a Large Portfolio of Interest and Dividend Bearing Securities. If you can accumulate enough money into a portfolio of assets that pay regular interest and dividends, you may be able to use that cash flow to support your living expenses in retirement. This can be useful if you won’t have access to a pension and can’t rely on Social Security benefits alone.
Get To Work On Your Retirement Savings
Motif Investing offers No-Fee Traditional IRA, Roth IRA and Rollover IRA account types. There are no fees to open or maintain an IRA at Motif Investing and you can easily set up recurring deposits to help you reach your retirement goals sooner. Open a free account today.
Motif Investing, Inc. does not provide tax or legal advice, investors should consult with their own tax advisors before taking any action that may have tax consequences.
Commissions, taxes and transaction costs are not included in this discussion, but can affect final outcome and should be considered. Please contact a tax advisor for the tax implications involved in these strategies.
- IRS, “Allocation Of Refund (Including Savings Bond Purchases),” Department Of The Treasury, 2016.
- IRS, “Publication 969 Health Savings Accounts (HSAs),” Department Of The Treasury, 2016.
- Guina, Ryan, “How To Use A Health Savings Account For Retirement,” U.S. News, September 10, 2015.