Additional tax-advantaged ways to save for retirement

By: Kimberly Lankford

Now is a great time of year to make sure you’re taking advantage of all of your tax-advantaged opportunities to save for 2019. Money in these accounts can grow tax-deferred (or tax-free) for the future, and your contributions may also help you lower your taxable income this year. Even if you’re already saving for retirement in a 401(k) at work, these next-level strategies can help you build up an even bigger nest egg and give you extra tax benefits, too.

— Catch-up contributions to a 401(k). You can contribute up to $19,000 to a 401(k) plan at work for 2019, and you can add an extra $6,000 if you’re 50 or older, boosting your total contributions to $25,000. Your contributions can lower your taxable income and grow tax-deferred until retirement. Or if your employer lets you make Roth 401(k) contributions, the money you invest won’t reduce your taxable income now but can be withdrawn tax-free in retirement. You have until December 31 to contribute to your 401(k) for 2019, and the earlier you increase your contributions the sooner you can start spreading out the extra money over several pay periods.

— Contribute to a Roth IRA, even if you’re just working part-time. As long as you have any earned income from a job — even if it’s just part-time work or a freelance gig — you can contribute to an IRA. You can contribute up to the amount you earned from working, with a maximum of $6,000 in 2019 (plus an extra $1,000 if you’re 50 or older). If your modified adjusted gross income is less than $137,000 if you’re single, or $203,000 if you’re married filing jointly, then the contributions can be to a Roth IRA, which doesn’t lower your income now but can be withdrawn tax-free in retirement (the amount you can contribute to a Roth starts to phase out if your income is more than $122,000 if single or $193,000 for joint filers). For more information about the income limits and calculation, see the IRS’s 2019 Roth IRA contributions factsheet. You have until April 15, 2020, to contribute an IRA for 2019.

— Contribute to a spousal IRA. You usually need to have earned income from a job to be eligible to make IRA contributions. However, if you are working but your spouse is not, you can contribute up to $6,000 (or $7,000 if 50 or older) to an IRA on his or her behalf. The IRA can be either a traditional IRA or a Roth; the income limits to make Roth contributions are the same for spousal IRAs as they are for individual IRAs.

— Contribute to a self-employed retirement plan if you have freelance income. If you earn some extra money from your own business or freelance work on the side, you can make tax-deductible contributions to a simplified employee pension (SEP) or a solo 401(k). For details about the plans and contribution calculations, see IRS Publication 560, Retirement Plans for Small Business. You have until April 15, 2020, to contribute to a SEP or a solo 401(k) for 2019, but you have to open the solo 401(k) account by December 31, 2019).

— Contribute to a health savings account. You may think of an HSA as a tax-free way to pay for out-of-pocket medical expenses. But it can also be a great way to save for health-care costs in retirement. You can make pre-tax (or tax-deductible) contributions to an HSA for 2019 if your health insurance policy has a deductible of $1,350 or more for single coverage or $2,700 or more for family coverage. If you had the high-deductible plan for the full year, you can contribute up to $3,500 for 2019 if you have single coverage or up to $7,000 for family coverage (plus an extra $1,000 if you’re 55 or older in 2019). You can then use the money tax-free at any time to pay out-of-pocket medical expenses — such as your deductible, co-payments, dental and vision care and prescription drug costs — or you can leave the money growing in the account for future expenses. And after you turn 65, you can also withdraw money from the HSA tax-free to pay premiums for Medicare Part B, Part D or Medicare Advantage coverage. For more information, see IRS Publication 969 Health Savings Accounts.

Give Your Kids a Big Head Start on Tax-Free Savings

Kids with jobs can contribute to an IRA. Kids of any age who earned income from a job — whether from a full-time summer job or even just a few hours of work each week — can save in a Roth IRA. They can contribute up to the amount of money they earned by working for the year, with a maximum of $6,000 for 2019. They can withdraw their contributions without taxes or penalties at any time — providing money for a back-up emergency fund or house down payment, for example — and the earnings can be withdrawn tax-free in retirement. Even if they just contribute a few thousand dollars now, the money can grow significantly over the 40 or 50 years, giving them a huge head start on their retirement savings.

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