5 ways to save more for retirement in 5 minutes or less
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If saving for retirement frightens you, that trepidation is probably holding you back. A new study from Principal Financial Group and behavioral economist Dan Goldstein found many Americans are delaying big money moves because they don't feel confident in their choices, not because they're cash-strapped or debt-ridden. In other words, if you want a bigger nest egg, you might simply need to believe in yourself, researchers told USA Today.
A money makeover can certainly improve your personal finances, but it's hard to build confidence overnight. While you work on your financial fitness, here are five ways to save more for retirement in five minutes or less.
We're starting with this tip because tax season just ended. If you didn't get a refund or already put yours to work, you can sub in "raise" or "bonus." The gist of this strategy: Deposit a windfall into an individual retirement account. (You can contribute up $5,500 into an IRA each year.)
If you're more comfortable with risk, look into investment apps or digital brokers. You can find other smart ways to use your tax refund here.
There are two types of IRAs. Traditional IRAs are tax-deferred, meaning you don't pay taxes on your contributions until you withdraw them. Roth IRAs are not tax-deferred. You pay taxes on your contributions, not your withdrawals. Sounds like a raw deal — most people leverage tax-deferred retirement accounts to lower their taxable income — but it's actually a smart savings strategy, particularly for people just getting started in the workforce.
Why? Because the tax bracket you're in now is likely to be lower than the tax bracket you're in when you withdraw the money. And you won’t pay any taxes on investment gains each year. You can learn more about why it's a good idea to open a Roth IRA in your 20s here.
Most employers let you change the amount of money going into your 401(k) account all year. So, if your savings are lagging, jump in and up your contributions. In an ideal situation, you're maxing out. The IRS lets you contribute up to $18,500 each year to a 401(k) account. If that amount is causing you stress, aim to maximize your employer's match. And if that's too stressful, try upping your 401(k) by 1%. Even a small increase makes a difference, thanks to compound interest.
Employees 50 years and older can contribute an extra $6,000 to an employer-sponsored 401(k) each year. They can also contribute an extra $1,000 to their traditional or Roth IRA annually. If your nest egg is light, go ahead and play catch up.
Chances are, your employer offers other benefits that can lower your taxable income and help you put more dollars toward retirement. Common ones include health savings accounts, flexible spending accounts and commuter benefits.
For more easy ways to save in general, go here.
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