It’s that time of year again—the time when you should take stock of your retirement portfolio to ensure you’re on the right track to retire comfortably. Below are four tips to help you build more wealth in your portfolio in 2019.
Increase contributions to your IRA and/or 401(k)
Contribution limits for IRAs and 401(k)s increased by $500 for 2019. That may not seem like a whole lot, but you should take advantage of this. Every dime you can save in your account helps you achieve your retirement planning goals. So, if you have your annual contributions set at a fixed amount, you should increase that number to include the extra $500 now. In addition (if you aren’t already doing so) make plans to max your contribution limits out each year. The compound interest you earn on your contributions alone should be the only reason you need to make yourself contribute the maximum allowed amount each year. In addition to the compound interest benefit, don’t forget Uncle Sam also matches your contributions from tax savings. The amount contributed deducted from your total earned income, which lessens your year-end tax liability
And, don’t forget those catch-up contributions if you are 50 years and over! IRAs allow an extra $1K and 401(k)s an additional $6K per year thanks to this catch-up provision. If you have a 401(k), the total contribution is $19,000 this year if you’re under 50. But, if you turn 50 by the end of this year, your catch-up provision allows that limit to increase to $25,000. This is especially beneficial if you’re nearing retirement—the more you can save, the better off you’ll be when you retire.
Explore Roth conversions
These transactions come in handy if your income is lower than expected and/or when the market is on a downslide. You are able to convert some or all of your IRA funds into a Roth account to take advantage of tax-free growth and the benefit of no required minimum distributions.
Often, conversions are best performed towards the end of the year—when you have a better grasp on your income situation. However, circumstances in your world due to the recent stumble of the stock market might make it advantageous to perform at least a partial conversion now.
Traditional IRA account owners should consider the tax ramifications, age, and income restrictions in regards to executing a conversion from a traditional IRA to a Roth IRA. The converted amount is generally subject to income taxation.
Roll over that old 401(k)
Have you ever wondered what you can do with your 401(k) that’s still administered by a previous employer? You may have the option to leave the funds with your old employer, or you can certainly cash it out if you wish. But, you can also roll those funds into your new employer’s plan if plans are offered at your new work place and if roll overs are permitted. Another alternative is to roll it over into an IRA. Investment offerings differ from custodian to custodian, so this maneuver is worthy of your attention. Moving these funds can broaden your investing opportunities and give you more control over the account. Especially if you are ready for retirement. If you leave the 401(k) with your ex-employer, you’re unable to slowly withdraw funds from the account base on their needs when you retire.
You can easily roll those funds over into an IRA. As long as the roll over is performed properly, the funds are moved from the old custodian to the new one without your account incurring taxation or penalty. Consolidating all your retirement accounts makes it easier to manage implement saving and investing strategies. You’ll also capture the opportunity to benefit from a Roth conversion down the road if that’s advantageous for you.
Check out self-employed/business owner retirement plans
If you are self-employed or own a business now is a great time to revisit your situation for 2018 and project revenue for 2019. If you made a lot of profit in 2018 and do not have a retirement plan for your business, consider opening a SEP IRA before you file your 2018 tax return. Otherwise, if you foresee high earnings in the new year, let’s start tax planning early in 2019. Explore other plans such as defined contribution plans (such as 401(k) profit sharing) or defined benefit plan may yield a much higher tax benefit.
To find out which of the above tips are the best for you, consult your financial advisor. You want to make sure the moves you make fall within the best strategy fit for your unique situation.