These peak earning years are the best time to maximize tax-advantaged contributions and provide the opportunity to strengthen your portfolio.
Boost your 401(k) contributions
If your employer offers a 401(k) plan, make participating in that a top priority and take full advantage of any employer match. Contribute as much as you can, up to the limit set by the IRS. You might also consider a contribution to a traditional IRA or
Roth IRA.
Sign up for automatic payroll deductions if your employer offers it, which can make investing easier. And if you get a raise or bonus, think about using a portion for your retirement contributions instead of spending it.
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Changing jobs? Don't forget your retirement plan
You may be able to roll your existing investment account over to a Traditional or Roth IRA, roll it over to a 401(k) at a new employer, take a distribution or leave the account where it is, depending on your unique financial needs and retirement goals. Each option presents different benefits and limitations with regard to available investment choices and services, fees and expenses, withdrawal rules, required minimum distributions, tax treatment, and protection from creditors and legal judgments. Additionally, there are limits to how often and when you can rollover your account.Footnote 1
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Even a non-working spouse can help save for retirement
If you're married and file taxes jointly, you may be eligible to contribute to a traditional or Roth IRA on behalf of a non-working spouse (up to IRS limits). This can be a smart way to boost your household's tax-advantaged retirement assets.
If your spouse is self-employed with some income, consider a SIMPLE IRA or SEP IRA, which may have higher contribution limits depending on how much your spouse earns.
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Complete your retirement picture with taxable investments
Because 401(k)s and IRAs are tax-advantaged accounts, they're powerful vehicles for pursuing your retirement investment goals. But there are contribution limits, and as you earn more and your retirement goals become clearer, you may find that a taxable account can help you pursue the retirement you envision.
Taxable accounts have no contribution limits or withdrawal restrictions and, unlike Traditional IRAs and 401(k)s, there's no tax on the principal when you withdraw it. And even in a taxable account, there are ways to possibly reduce your tax burden:2
- Hold investments for more than one year to lessen the impact of capital gains taxes
- Consider tax-efficient investments like index funds and tax-free bonds
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