Make the Maximum Contribution to Your Retirement Plan & Retire Secure Emporia KS
Ameriprise Financial Services,
Areas of Specialization
Asset Allocation, Budget Development, Business Succession Planning, Charitable Giving, Comprehensive Financial Planning, Divorce Issues, Education Planning
New York Life Insurance
Dunham & Associates Financial Planning LLC
Ongoing Investment Management, Middle Income Client Needs, Retirement Planning & Distribution Rules
NAPFA Registered Financial Advisor, BA, BS, CFP®, CMFC, MBA
Ongoing Investment Management, Retirement Planning & Distribution Rules, Planning Issues for Business Owners, Retirement Plan Investment Advice, Estate & Generational Planning Issues
NAPFA Registered Financial Advisor, CFP®
Owens Financial Services
Banking Center Services: Change Order, Commercial Deposits, Night Deposits, Drive Up
Outdoor ATM Services: Open 24 Hours, Braille, Accepts Deposits
English, Spanish, Chinese, Korean, French, Russian, Portuguese
Drive Up Hours
Clayton Financial Services, Inc.
Ongoing Investment Management, Advising Employee Benefit Plan Participants, Helping Clients Identify & Achieve Goals
NAPFA Registered Financial Advisor, CFP®, CLU
Legacy Wealth Partners, LLC
Overland Park, KS
Helping Clients Identify & Achieve Goals, Ongoing Investment Management, Financial Issues Between Generations, Estate & Generational Planning Issues, Charitable Giving - Trusts & Foundations, Alternative or Private Investments
NAPFA Registered Financial Advisor, BSEE, CFP®
Make the Maximum Contribution to Your Retirement Plan & Retire Secure
|Saving For Retirement: Make the Maximum Contribution to Your Retirement Plan & Retire Secure |
By James Lange
Many people perhaps you feel they cannot afford to save for retirement. The truth is you may very well be able to afford to save, but you don t realize it. That's right. I am going to present a rationale to persuade you to contribute more than you think you can afford.
First, I am operating on assumption that you are following the cardinal rule of saving for retirement: If your employer offers a matching contribution to your retirement plan you are contributing whatever your employer is willing to match even if it is only a percentage of your contribution and not a dollar for dollar match.
Now, let's assume you have been contributing only the portion that your employer is willing to match and yet you barely have enough money to get by week to week. Does it still make sense to make non-matched contributions or Roth IRA contributions assuming you do not want to reduce your spending? Maybe. (This article does not address Roth IRA contributions vs. non-matched 401(k) contributions and hereafter only refers to non-matched 401(k) contributions).
If you have substantial savings and maximizing your retirement plan contributions causes your net payroll check to be insufficient to meet your expenses, you should maximize retirement plan contributions.
The shortfall for your living expenses from making increased pre-tax retirement plan contributions should be withdrawn from your savings (money that has already been taxed). Over time this process, i.e., increasing contributions to your retirement plan and funding the shortfall by making after-tax withdrawals from an after-tax account, transfers money from the after-tax environment to the pre-tax environment. Ultimately it results in more money for you and your heirs.
Another way to squeeze blood from a stone is to consider an interest only mortgage. The reduced mortgage payment (in contrast to what you would be paying on a 30-year fixed rate mortgage) is deductible as a home interest expense. The additional cash flow from the reduced payment could be used to pay credit card debt or fund one or more tax favored investments. You could open a Roth IRA, make additional retirement contributions, and/or purchase a tax-favored life insurance plan. In the long run, you could be better off, often by hundreds of thousands of dollars. Of course there are risks with this strategy.
Another opportunity to shift savings from the after-tax environment to tax advantaged retirement savings might arise if you are the beneficiary of an inheritance.
Take this Changing Your IRA and Retirement Plan Strategy after a Windfall or an Inheritance mini case study for example:
Joe always had trouble making ends meet. He did, however, know enough to always contribute to his retirement plan th...