Retirement Planning: 4 Tips to Follow Today

Thinking about retirement can be overwhelming. But the fact is, that the financial decisions you make today—even if your retirement is years away—can significantly impact this chapter in your life. Taking steps to prepare can help to ensure your retirement is what it's meant to be: a time to enjoy all that life offers.

DS+B Team November 5, 2018

Here are four tips to guide you in preparing for your golden years.

1. Increase your contribution to your 401(k) or employer plan
Because of tax-deferred compounding, increasing your contributions to your 401(k) or other employer plan sooner rather than later can dramatically affect the size of your nest egg at retirement. But if you’re behind, don’t fret: employees age 50 or older can also make “catch up” contributions. If you didn’t contribute much when you were younger, this may allow you to partially make up for lost time. If you don’t have an employer-sponsored plan or are self-employed, consider a tax-deferred saving option, such as a SEP plan or a traditional IRA.
2. Consider a Roth alternative

Unlike tax-deferred plans, a Roth plan allows you to take tax-free withdrawals at retirement. Keep in mind, however, that contributions to your Roth plan will not reduce your current-year taxable income.

A Roth IRA, for instance, allows the account’s entire balance to grow tax-free over your lifetime—giving you a valuable estate planning advantage. Roth IRAs do have income-based phaseouts, so your income may impact your ability to contribute. “Back-door” Roth IRAs offer a way around this, as do employer-provided Roth 401(k), Roth 403(b), and Roth 457 plans.

3. Avoid making early withdrawals

It can be tempting to look to your retirement accounts for cash when life throws you for a loop, but doing so should be a last resort. Distributions before age 59½ are subject to a 10 percent penalty on top of any income tax that would be due on a withdrawal. You would also lose the potential for tax-deferred future growth on the amount you withdrew.

If you should find yourself in a tight situation, there are options: If your employer-sponsored plan allows it, you could take a plan loan. You could also withdraw up to your contribution amount from a Roth account without incurring taxes or penalties.

4. Don't neglect annual required minimum distributions

Required minimum distributions (RMDs) kick in during the year you reach age 70½. From here on out, you must take RMDs each year from your IRAs and, in most cases, from your defined contribution plans. If you fail to comply, you could face steep penalties. Roth IRAs, however, are exempt from RMDs.

You can also avoid RMD penalties by making a direct contribution of up to $100,000 from your IRA to qualified charitable organizations. Although you can’t claim a charitable deduction for the amount, it won’t be included in your taxable income and can also satisfy your RMD.

Plan ahead for a golden retirement.

These tips represent just a few of the things you can do to better prepare for retirement. Your tax advisor can help you determine which retirement savings plans and practices are best for your situation, as well as how the Tax Cuts and Jobs Act may impact any current plans you have. If you’re ready to move toward the retirement you’ve always wanted, we’re here to help. Give us a call to help you build a smart and sound financial plan.