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Taking your retirement savings to the max

You’ve been busy as a "CPA" in April as you save for retirement, and you reached your annual limit. Here’s how (and where) you can save more.

Maybe you didn’t ever think you could do it. Or you didn’t even realize you had until you looked at your retirement account.

But now—big kudos!—you did: You’ve hit your pre-tax limit on workplace savings for the year. How else can you keep saving? Here are some ideas:

Saving in an IRA

First, make sure you really hit your workplace plan’s maximum limit: If you’re 50 or older, you are eligible in 2018 for a higher “catch-up” contribution limit of $24,500—$6,000 more than those under age 50.

If you did, next look into an Individual Retirement Account (IRA). The pre-tax savings guidelines look pretty straightforward at first glance:

  • If you’re younger than age 50, you can sock away up to $5,500 pre-tax in an IRA, if you meet certain IRS guidelines.
  • If you’re age 50 or older, the IRS lets you contribute an additional $1,000, totaling $6,500, into your IRA.1

It’s a good idea to put IRA planning on your New Year’s resolution list. Just be sure to see if you are eligible for a Roth IRA, which has income limits. If you are, you can make contributions with after-tax dollars—but retirement withdrawals are generally tax-free. Year to year, the rules around income, age, and workplace plan contributions can raise or lower your deduction limit.

If you’ve started consulting or added freelance gigs to your plate, you may be able to take advantage of Simplified Employee Pension (SEP) IRAs. A SEP, like an employer’s retirement plan, is funded with pre-tax dollars, potentially lowering your taxable income.  Under federal rules, you may be able to put away up to 25% of your 2018 net income from those ventures or up to $55,000.3

Saving with your spouse

Look across the breakfast table. Is your spouse taking advantage of his or her maximum contribution limits for their workplace plan and in an IRA? Making sure your significant other is also saving the max along with you can set both of you up better for the future. Your spouse can contribute to an IRA even if they are not working outside the home.

Boost your emergency fund

When was the last time you made sure you and your family have enough emergency savings? If it was more than one season of your favorite TV show ago, update your goal according to what you’d need tomorrow. You should be able to access that money quickly and not risk losing principal, so stick with a regular savings or money-market account or a six- or 12-month certificate of deposit (CD).

How much should you save? That depends on the size of your family and whether you work as an employee or rely on contract or freelance income, but a common goal is to have emergency dollars to cover 6 months worth of living expenses.4 

Saving in a personal annuity

If you want an additional way to save for retirement outside of your employer plan, consider a personal annuity. A personal annuity, also called an after-tax annuity, can help you build additional retirement savings. It offers options that can provide guaranteed income for life when you retire.5

Saving in a 529 plan

Feeling good about your retirement game plan? Tackle your college game plan next. A 529 plan is an investment account you can open on behalf of your child, other relatives, or even yourself. These plans are sponsored by states and educational institutions and have tax advantages. Just know you have to spend this saved money on qualified education costs or possibly face tax penalties on withdrawals, and your contributions are considered gifts for tax purposes—so you can only contribute up to $14,000 per year before being subject to gift tax.6

Saving for healthcare costs

Let’s talk doctors and dentists: Americans spend more than $10,000 per person per year on healthcare.7

If you qualify, consider opening a health savings account (HSA). HSAs are only for people who have high-deductible health insurance plans—at least $1,350 annual deductible for an individual or $2,700 for a family in 2018, according to the IRS—and let you save $3,450 pre-tax as an individual and $6,900 pre-tax if you have a family plan.8

You can use funds in the account to pay for current healthcare costs (think contact lenses, office co-pays, prescriptions), or you can leave the money in the account and use it later, even as far into the future as your retirement years. After you turn 65, it’ll be tax-free if you use it for your qualified healthcare costs, and taxed as income spent any other way.

Sit back and celebrate

Implementing these pre-tax savings tips helps you reach your other savings goals above and beyond maxing out your retirement contributions for the year. And while these ideas to save may not exactly seem like an indulgent splurge, finding new ways to invest in your future may be the best way to celebrate how well you’ve done in your workplace retirement plan.

CD’s are FDIC insured and offer a fixed rate of return if held to maturity. Annuities are not FDIC insured. Annuities are long-term, tax-deferred investment vehicles designed for retirement purposes. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Withdrawals made prior to age 59 ½ are subject to 10% IRS penalty tax. Surrender charges apply.