An article in Kiplinger discussed an aggressive approach to financial planning in your forties. Let’s take a look at some of the highlights.
Make saving for retirement a priority and beef up your investments.
You’ll want to start by making the largest possible contributions to your employer’s retirement plan. At the very least, you should put enough into your company’s retirement plan to take full advantage of its contribution matching program. For example, if your company matches up to three percent, you should contribute the same in order to maximize the benefit that your employer offers.
A word of caution—if you put all your retirement savings into tax-deferred accounts, you might get hit hard by taxes when you retire. That’s because withdrawals from 401 (k) plans and traditional IRAs are taxed at the retiree’s ordinary income tax rate. This makes contributing to a Roth IRA a good idea. Your contributions are after-tax, but your withdrawals are tax-free as long as you are over 59½ and have owned the Roth IRA for five years or more.
It is important to note that employees in lower tax brackets are typically better off diverting some of their savings to Roth IRAs and other taxable accounts because the benefit of tax deferral is not as valuable as it is to those in high tax brackets. Conversely, if you are in a high tax bracket, you should contribute as much as possible to tax-deferred accounts. This is because when you take withdrawals in retirement you will likely be in a lower tax bracket.
Next time, we’ll look at three other strategies you may want to consider.
Please contact us today to schedule a time to discuss your estate planning needs.