The U.S. economy has seen some wild ups and wilder downs in the years we’ve been doing our annual retirement surveys. But a few of our findings have remained remarkably consistent. When asked about their regrets, for example, our retirees always put their savings habits in the top two spots. Year after year, Regret No. 1 is not starting to save early enough. Regret No. 2: not saving as much money as they could during their working years. There isn’t much anyone can do about starting sooner, but those of us who still have money coming in can almost always figure out ways to save a little more. Here are a few suggestions: Put your 401(k) front and center. A 401(k) or 403(b) plan, if you have one, may never be enough to fund your entire retirement, but for most of us it’s the best place to start. For one thing, the money comes out of our paychecks automatically, before we have a chance to do anything silly with it. Plus our contributions and the money they earn over time aren’t taxed until we begin withdrawals. And many employers offer some kind of match. This year you can put up to $22,500 into a 401(k) if you’re 50 or older; $17,000 if you’re younger than that.
Consider an IRA or two. If you have any money left after funding your 401(k), an IRA could be a good place for it. Whatever type of IRA appeals to you, it can be funded through regular automatic withdrawals from a checking or money market account, making the process as effortless as contributing to a 401(k). This year you can put up to $5,000 ($6,000 if you’re 50 or older) into either a traditional IRA, where you get a tax break on the money going in, or a Roth IRA, where you forgo a deduction up front in return for tax-free withdrawals later on. You can also split your money between the two types of accounts. Both have eligibility restrictions tied to your income and tax-filing status and, in the case of the traditional IRA, whether you’re covered by a retirement plan at work.
The traditional IRA has age restrictions (you can’t contribute past age 70 1/2); the Roth does not. The Roth IRA has several other advantages. For one, you can take out your principal at any time without penalty, making it suitable for needs other than retirement. Another benefit is that you’re never required to take minimum distributions. IRS Publication 590, which is available on the IRS website, has all the details.
Then there’s the nondeductible IRA, which has fallen into obscurity since the advent of the Roth. But it was never all that popular to begin with. Why would anybody contribute to an IRA that doesn’t offer a tax break at either end? Mari Adam, a certified financial planner in Boca Raton, Fla., and a self-admitted "big proponent" of nondeductibles, offers a couple of reasons. For one, your contributions to a nondeductible IRA grow tax-deferred, same as with a deductible IRA. Your money is also protected from creditors. That’s true of retirement accounts in general but not nonretirement ones, where those savings might otherwise reside. Perhaps most important, Adam says, putting money in a nondeductible IRA simply keeps a person from spending it.
Moonlight and save even more. If you have a skill that lends itself to part-time self-employment, a world of additional IRA possibilities opens up to you. One is the SEP-IRA, which allows you to put aside 25 percent of your income, up to $50,000, regardless of whether you’re covered by a retirement plan at your main job.
Another option is the SIMPLE IRA, which isn’t based on a percentage of income but allows you to contribute up to $14,000 if you’re 50 or older ($11,500 if younger) just as long as you made that much. One hitch, Adam points out, is that you have to set up a SIMPLE account by Oct. 1 of the tax year, whereas a SEP lets you put it off until the following year’s tax filing deadline, usually April 15.
Subsidize the spouse. If you’re married and one of you doesn’t work outside the home, the "nonworking" spouse can also fund an IRA in many cases. Under ideal circumstances, that can double the amount the two of you are able to tuck away. If you’re both older than 50, for example, that could be $12,000 for 2012.
Use nonretirement accounts. Assuming you have something left to invest after you’ve exhausted the possibilities above, remember that all your retirement savings don’t have to be in retirement accounts per se. In fact, there’s something to be said for keeping some cash outside of such accounts, both for liquidity and to lessen your required minimum distributions come age 70 1/2.
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