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This post is part of a 13 money resolutions for 2013 series. You can check the first post for an updated list of the following ones.
Now that we have gone over many little ways to save money in your
budget for the new year, you should have more room to save and invest.
One very important thing you should be saving and investing in is your retirement. We all have different savings goals and dreams for retirement, but the general idea is that you will probably live until you are 80 or 90 years old, and need to cover your living costs until then. Taking advantage of tax incentives and high rate savings accounts will help you build a comfortable nest egg.
So go max out those retirement accounts!
Reminder: I am not a professional adviser and you should probably seek one to make sure you maximize your retirement money.
Max out your company match
Who can say no to free money? Whatever the match your company offers on your retirement account, make sure you take advantage of it. Most matches are before taxes, so if you pay 25% of taxes, and put $100 gross in your retirement account with $100 company match, your paycheck will be reduced by $75, but your retirement account will grow by $200. How awesome is that?
Max out your retirement account
Every country has a different name for those retirement accounts but the principle is the same, and those accounts are generally tax free so make sure you take full advantage of them by depositing the maximum amount every year. In order to make it easy, have the amount wired automatically every pay day and you won’t miss the money. It is much easier than having to think about it at the end of the month, plus the money will probably be gone by then.
Max out your tax free savings account
In the UK those accounts are called ISAs. If you work there, you are entitled to £11,280 in stock and shares or a mix of £5,760 maximum in cash and the rest in stocks and shares, with all your money and capital gains tax free. If you take money out, you can’t put it back, so try to leave it there and max it out every tax year.
Max out your college funds
If you have kids, make sure you put the maximum amount into their college funds. Some states offer matches, other tax incentives… Whatever it is, there is surely something you can profit of.
Max it all out!
Other accounts include Health Savings Accounts, although you have to spend the money on healthcare or lose it so it may be trickier, and savings accounts with a bonus rate. There are incentives for small earners to get a government match when they save money, like the Individual Development Accounts in the US. Those matches amounts are small since they target people who aren’t use to save, but if you are entitled to one, try to enjoy the free match!
What else should savers max out in 2013?
I just came across your 13 money resolutions and read every one of them. I would maxing out your income potential will help you max out all the options here in this post. You can only do so much to max out options and save money. Sometimes the best remedy is to increase your income. Frugal living is one of the keys to financial independence. Having more to put away is crucial.
Absolutely. Frugal living will only take you so far, earning possibilities are endless.
This is definitely something that I am working on. I want to max out everything that I possibly can. I have a lot of work to do, but I will get there.
I have no doubts you will! Getting a 529 for a 2 weeks old is proof enough 🙂
Maxing out contributions is a great idea. Also if you pay off a little extra on your principal it helps out a lot too.
I am yet again going over my budget and cutting everything I can. I am going at my finances like never before. I only have a finite amount, and no CC to save me. It has been a rude awakening, but such a blessing in disguise!
You have come a long way, now it can only get better!
I’ve never understood why anyone would not take advantage of a company retirement match. My company doesn’t do so, but if they did you can be sure I’d be contributing as much as they’d match.
I didn’t because I lived in the country for a few years only and didn’t know if I could transfer the match afterwards. Other than this I see little excuses not to.
I maxed out my plan at work for the first time last year and I should have done it sooner. Hopefully someday, I’ll be able to max out all the accounts you mentioned. I finally have all my employees signed up so they contribute at least enough to get the match. I can’t imagine why you wouldn’t do that.
That is great you got everyone on board! I didn’t take the match in the UK so I could buy a property and because I didn’t know if they’d transfer the pension to France but if this is a permanent job everyone should take advantage of it.
Well said. Maxing out is the way to achieve two goals — reduce taxes now, and prepare for retirement as well!
Win win! Retirement seems very far away but we have to be prepared since it is unlikely anyone else nor the government will provide for us.
Another good post, Pauline! It’s cool to slowly increase your contributions through automation and see if you can’t “feel it”. We are up to 20% now for 403(b), a healthy 529 contribution, and then automated savings for yearly expenses. As soon as debt is done, it will even be more fun!
I would argue against maxing it all out if you want to retire early. Having money stuck in retirement accounts won’t help you exit the rat race sooner. I’d advocate for investing enough in tax sheltered accounts to secure any matching funds. I’d also invest in other specialty accounts (eg college savings) as may be warranted by your own personal situation. But otherwise, I want my money working to ensure that I achieve financial independence sooner rather than later.
Me too, which is why I didn’t even take the match while working in the UK, to save aggressively for a house deposit and invest in stocks. But early retirement isn’t for everyone. If you want to make an early exit, it makes more sense to follow the path you suggest.
Great tips. I am all for maxing out if it will reduce my taxes. The best part is building my retirement while doing all these. I don’t see early retirement in my plan, on the contrary, I will keep on working while I can to keep my mind and body healthy.
As long as you enjoy your job, that is a great way to keep active. I prefer to focus on personal projects but the safety of a job is something I miss.
I’m a firm believer of maxing out on your retirement savings, be it a 401k, an IRA or any combination. I haven’t quite max’d out my contributions yet, but I’m close. Once I get my debt tackled and down to zero I’ll divert those funds to max out my retirement contributions.
Wise thinking. I hope you can take the full match in the meanwhile.