As the Social Security continues to hang on the balance with questions as to the government ability to sustain the payments, financial advisers are encouraging people to plan and saving up for their own retirement.
Even if the government sustains the Social Security, you will still be better placed with more funds set aside for your retirement.
Uncle Sam has also provided some reliefs for those who choose to save up for their retirement.
You can therefore, take advantage of these tax provisions to save as much as possible while getting tax relief.
Below are some tips on your retirement savings: Match Your Employers Retirement Contribution To ensure you get the most from your 401(k) accounts, ensure that you save as much as your employer can match.
Employers match an employee's contribution to their 401(k) account to a given cap.
The amount of money put to your 401k by your employer is free money and therefore, the more you can get the better.
If you are not putting aside the maximum amount to be matched by your employer, consider making an adjustment as soon as you are able.
Start Your Own Individual Retirement Account If you only save up for retirement under the employer run retirement plan, it may also be a good time to consider starting your own retirement account.
You can open a traditional IRA or Roth IRA account.
Traditional IRA accounts allow you to save funds tax free with limits being determined by ones annual income.
On the other hand, Roth IRA accounts allow you to save retirement funds after paying taxes.
The growth on the fund does not attract capital gain taxes and distributions from the fund are also not taxed.
However, to save up in a Roth account, your Adjusted Gross Income (AGI) needs to be less than $122,000 for single filers and $179,000 for those who file jointly.
Save as Much as the Tax Law Provides When making contributions for your retirement funds, it is also advisable to save as much as the law allows for tax savings.
This ensures that you get the most from Uncle Sam as far as your retirement funds are concerned.
For IRA accounts, the tax system allows taxpayers to contribute up to $5,000 to get the tax relief.
For those who are 50 years and older, they are allowed to save up to $6,000 within the tax relief.
Consider Converting to Roth Account You may also consider converting some or all of your traditional IRA fund into a Roth IRA account.
To do so, you will need to pay tax on the amount that you are converting.
While making a conversion, you will need to raise the taxes as taxes will need to be paid from funds besides those in the account.
Besides this, a conversion may push your income into higher tax brackets thereby having you taxed at a higher rate.
You will therefore need to do your calculations right before attempting a conversion.
You may consider making the conversion in two or three years so as to avoid being pushed into a much higher tax bracket.
Converting your traditional IRA to a Roth IRA has its advantages and disadvantages.
A Roth account will have distributions tax free as long as the account is more than 5 years old.
You therefore, do not need to concern yourself with taxes for the distributions once you retire.
Furthermore, you do not need to take the minimum distribution that is required with the traditional IRA.
However, if you will be in a lower tax bracket after retirement, paying taxes when retired may be more advantageous for you and therefore, a traditional IRA may have more tax savings.
You therefore, need to carefully consider your options before making a conversion.