Lesser-Known Ways to Boost Your Retirement Savings

If you’ve spent time saving for retirement, you’re likely familiar with various retirement vehicles such as 401(k) plans, IRAs, and annuities. In this post, we’ll cover some lesser-known alternatives that can help provide a boost to your retirement savings.

Catch-up contributions

Once you turn 50, the IRS allows you to make annual “catch-up contributions.” As additional contributions you can make above standard limits to your 401(k)s and IRA, these are offered to encourage savings and help ease the financial burden of retirement—especially if you didn’t save enough when you were younger.

If it makes sense for your overall plan, you should take advantage of this benefit as the corresponding tax-deferred growth can significantly boost your retirement savings. The IRS sets catch-up contributions for eligible retirement plans annually. As of 2023, catch-up limits are as follows:

·       IRAs: $1,000 catch-up contribution, meaning you can make a total contribution of $7,500 (limit of $6,500)

·       401(k)s: $7,500 catch-up contribution, meaning you can make a total contribution of $30,000 (limit of $22,500). This also applies to other workplace retirement vehicles such as 403(b)s, most 457s, and the government’s Thrift Saving Plan (TSP).

·       SIMPLE 401(k)s: $3,500 catch-up contribution, meaning you can make a total contribution of $19,000 (limit of $15,500)

You should also know that catch-up contributions received a significant boost as a result of the Secure 2.0 Act, which was signed into law in December 2022.

One Secure 2.0 provision is that annual IRA catch-up contributions will be adjusted annually for inflation beginning in 2024. Then in 2025, employees between the ages of 60 and 63 will receive a “special” catch-up contribution limit for most 401(k)s and other employer-sponsored plans. More specifically, this equates to $10,000 or 150% of the standard contribution limit (whichever is greater) for 2024. The $10,000 amount will also be adjusted for inflation each year beginning in 2026.

Meanwhile, catch-up contribution limits for SIMPLE plans will increase by 10% starting in 2024, and beginning in 2025, account holders between the ages of 60 and 63 will also receive a “special” limit: $5,000 or $150% of the 2025 catch-up contribution limit (whichever is greater) for other eligible workers. This amount will also be adjusted for inflation on an annual basis.

Health savings accounts (HSAs)

A health savings account is a type of savings account you can use to pay for qualified out-of-pocket healthcare expenses: including deductibles and copays. Eligible expenses range from Medicare premiums and long-term care costs to dental and vision expenses for yourself, your spouse, and/or eligible dependents.

HSAs are designed specifically to help people who have high-deductible health insurance plans (HDHP) as they look to pay for such expenses. Consequently, though not everyone can open an HSA, they are an attractive investment vehicle for future medical expenses and are sometimes utilized as a de facto retirement account: as you can roll over your contributions from year to year and use them later in life when you’re retired and most likely incur steeper medical costs. Click here to read more about HSAs.

Life insurance

Permanent life insurance is an umbrella term for life insurance policies that don’t expire: meaning they’ll pay out regardless of when you die. These policies also often feature a savings component—funded by a portion of your premiums—that allows you to build or “accrue” cash value and access funds while you’re still alive.

One advantage of such a policy is that you’ll enjoy the ability to withdraw from the cash value/savings you’ve built as needed and use the money for anything you want.

Most permanent life insurance policies also offer accelerated death benefit (also called “living benefits”) riders. These policy provisions enable you to receive benefits while you’re alive (also sometimes called “living benefits”) but deemed terminally, critically, or chronically ill and can help offset financial stressors on you and your family.

Retirement Saving Contributions Credit

The Retirement Saving Contributions Credit (or “Saver’s Credit”) is designed to encourage people with low-to-moderate incomes to save for retirement: essentially giving you a tax credit of up to $1,000 ($2,000 for married couples) just for contributing new money to a qualified retirement account.

You’re eligible to participate if you are age 18 or older, not a full-time student, and not claimed as a dependent on another person’s tax return. You must also fall below the maximum adjusted gross income cap threshold set by the IRS each year.

Backdoor Roth IRA

A backdoor IRA isn’t a type of retirement account; it’s simply an IRS-approved strategy that allows high-income investors to fund a Roth IRA even though their income exceeds IRS limits.

There are several ways to utilize a backdoor Roth IRA, each of which often requires converting a portion of (or all) traditional IRA funds to a Roth IRA.

One of the biggest advantages of utilizing a backdoor Roth IRA is that it provides tax-free growth on balances for as long as the account holder is alive (since Roth IRAs don’t have required minimum distributions). A backdoor Roth IRA can also mean significant tax savings over span of decades since related distributions are not taxable.

Nevertheless, many disadvantages are also associated with a backdoor Roth IRA: primarily in the form of taxes. This is precisely why we recommend speaking with your financial advisor, who can help guide you based on your own specific situation.

In sum: alternative strategies to boost your retirement savings

Deciding how to save for retirement is often a complex decision. While contributing as much as possible to widely known retirement vehicles such as 401(k) plans and IRAs is a great start, you should also familiarize yourself with some lesser-known savings-boosting strategies outlined in this post to better position yourself to enjoy a more comfortable retirement.

Still have questions on how to boost your retirement savings? Schedule a FREE Discovery call with one of our CFP® professionals.

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Vision Retirement is an independent registered advisor (RIA) firm headquartered in Ridgewood, New Jersey. Launched in 2006 to better help people prepare for retirement and feel more confident in their decision-making, our firm’s mission is to provide clients with clarity and guidance so they can enjoy a comfortable and stress-free retirement. To schedule a no-obligation consultation with one of our financial advisors, please click here.

Disclosures:
This document is a summary only and not intended to provide specific advice or recommendations for any individual. 

All investing involves risk including loss of principal. Securities offered through LPL Financial, Member FINRA/SIPC.  Investment Advice offered through Vision Retirement, a registered investment advisor and separate entity from LPL Financial.