Tips for Maximizing Your 401(k) and IRA Contributions

Maxing out retirement accounts may not be the best move for everyone, but it’s something I look forward to every year. Retirement accounts, such as a 401(k) and Roth IRA, come with many benefits that can make your life easier now and during retirement.

For instance, pre-tax contributions to a 401(k) can lower your taxable income. If you earn $100,000 in 2024 and contribute $23,000 to your 401(k), your taxable income drops to $77,000. Additionally, contributing to a Roth IRA with after-tax dollars allows for tax-free income during retirement.

Setting retirement goals and achieving them every year makes a significant impact on your financial future and helps build a healthy nest egg. If you want to boost your retirement savings this year, here’s how you can make it happen.

Start with Your Goals

Setting goals is a skill that can pay dividends in every area of your life. Clear and intentional retirement goals each year will bring you closer to the retirement you’ve always dreamed of. It’s essential to understand how different accounts work and be aware of limitations like contribution limits and income thresholds. For 2024, you can contribute up to $23,000 to a 401(k) and up to $7,000 to a Roth IRA before the tax filing deadline if your income isn’t above the threshold—$146,000 for a single person. If you’re 50 or older, those contribution limits increase.

Make It Easy to Achieve Your Goals

Adding five figures to a retirement account can seem ambitious, but there are steps you can take to make it easier:

• Live Below Your Means: Ensure your expenses are less than your income to free up more money for savings.
• Create a Budget: Track your income and expenses to identify areas where you can save more.
• Develop Profitable Skills: Increase your earning potential by learning how to leverage technology and artificial intelligence.
• Build an Emergency Fund: Save at least 3 to 6 months’ worth of funds for unexpected expenses to avoid dipping into your retirement savings.
• Pay Down Debt: Focus on paying off high-interest debt to allocate more money to your retirement savings.

Create Your Retirement Contribution Game Plan

Your game plan can increase the odds of maxing out your 401(k) and Roth IRA in 2024. Here are some tips:

• Plan Ahead: Save a little each month to avoid scrambling to make a large lump-sum contribution before the deadline. Determine your weekly or monthly contribution to reach your goal on time.
• Don’t Waste Windfalls: Direct extra money, such as work bonuses or tax refunds, into your retirement account.
• Automate Contributions: Set up recurring contributions from your checking account to your IRA. Your employer will automatically deduct 401(k) contributions from your paycheck.

Reaching the Finish Line

Maxing out your 401(k) and Roth IRA can help you catch up and build a strong retirement fund, especially if you started late. However, it may not make sense for everyone. Review your finances and consult a professional if needed. Retirement planning is personal, so customize your plan to fit your needs and goals for the best results.