Make Your 2013 Contribution (before April 15)
If you have an IRA or Roth IRA account you can still fund it with a 2013 contribution before April 15th of this year. Control what you can control and contribute as much as you can. Unlike a savings account or brokerage account growth on monies in qualified retirement accounts aren’t taxed so these accounts can be a real advantage when saving (and investing) for retirement. Here are contribution limits provided by the Internal Revenue Service (IRS).
Automatic Paycheck Contributions
Unlike an IRA you can no longer make contributions to a 401(k) for the 2013 tax year. If you’re offered a 401(k) or other retirement savings account through your employer you can make automatic contributions from each paycheck for 2014. A basic rule of thumb is saving 20% of income toward retirement. However, that isn’t realistic or appropriate for everyone. None the less, it is a good place to start. Make sure 20% of your salary is within contribution limits. Also, if you can’t afford to contribute 20% start with a smaller amount. It’s amazing how $100 per paycheck will add up over time!
Did you receive a raise or cost of living adjustment this year? That is a great time to increase automatic contributions to a retirement account. If you received a 2% increase in your paycheck you might not even notice it and the money would be spent. However, if you increase your 401(k) contribution each year a few percentage points at a time that money will be more likely to accumulate to a meaningful amount. Small contributions that correspond with cost of living increases can make a difference over time.
Catch Up (if you’re over 50)
If you are over age 50 you are eligible for catch up contributions. These vary by account. Here is a chart from the IRS which will help you determine the amount for each type of account. If you’re able to fund the larger contribution; take advantage of it! At age 50 you still have a meaningful time horizon until retirement (15 to 25 years). However, because retirement is approaching investment performance, along with additional savings, becomes even more critical during this period. I recommend at least an annual review of investments at any age but if you’re over 50 there is even more urgency.
This is an article from the Wall Street Journal that outlines additional age-specific retirement savings tips. Be vigilant about retirement savings and tax advantaged retirement accounts so that you can continue to SaveUp!
This post was written by SaveUp’s personal finance contributing writer, Catherine Hawley, CFP®.