Saving for retirement can feel like an endless journey into the unknowns of aging. While you can’t predict your longevity or how inflation will treat you, it’s possible to save strategically. You may be familiar with the traditional retirement savings options offered by most employers, but there are more to consider. In fact, researching some expanded options now can boost your savings rate and reduce your tax obligation.
Some newer options may inspire your entrepreneurial side, which can gain you access to incredible investment opportunities. Others may encourage you to learn the ins and outs of plan rules and tax advantages. The more you learn, the more you can take advantage of retirement alternatives that have kept a low profile.
People who work for themselves often get a tax break on home office expenses and business-related investments. But did you know that they can also tap into one of the most generous retirement savings options, too? Individuals who are self-employed can qualify for a solo 401(k), which allows them to save up to $57,000 annually.
If your eyes are popping out of your head, now is the time to reposition them — you read that figure correctly. This major savings opportunity allows qualifying account holders to save more than twice the amount of a regular 401(k). Set aside before taxes, this money can be invested in any IRS-approved fund. Earnings can be eligible for tax advantages based on your preferences. You can also borrow from your account for major purchases, repaying yourself over time.
You may be wondering why you should care, especially if you’re not self-employed. The best part about solo 401(k)s is that anyone with self-employment income can qualify. If you pick up a side hustle or do consulting work, the money you earn can be saved in your solo 401(k). Pair this type of savings strategy with your traditional retirement savings, and you’ll soon be anticipating your retirement.
Investment properties aren’t just for the rich — they’re for everyone. Consider your lifestyle and interests, and think about how you can invest in assets that pay you back. If you’re planning on upgrading your primary residence, for example, you could rent out your current home instead of selling it. The rental income can pay down your mortgage while the asset’s value goes up.
While you may not make a lot of money each month, you’ll benefit in the long term. The rental income covers your obligation and can leave you with a paid-off home before retirement. When you near retirement, you can keep up your landlord duties or sell your properties, which have increased in value.
If managing primary residences isn’t your thing, think about where you enjoy vacationing. Consider purchasing a vacation home that you’d love to return to. Use it for family vacations and partner with a management company to coordinate renting it to other vacationers when you’re not there. Ideally, your rental income will cover your property obligations and pay down your mortgage. As with local rentals, you can create an additional income stream or an asset you can sell in retirement.
You may think you know the best places to invest your cash, but you may have skipped one — 529 accounts. A 529 is a tax-advantaged investment account designed for saving for educational expenses. Usually associated with children, these accounts are available for people of every age. Contributions are made post-tax and investments earned are tax-free when used for qualifying educational expenses. But smart savers know that 529s can be a powerful retirement savings vehicle, too.
In many states, there are tax credits available to savers who use 529 accounts. Many times, these credits can be as high as 20% — a return almost unheard of, even in bull markets. Investments can be directed using a target date fund, set to mature at an ideal point in time. You can use the money to help fund your children’s or grandchildren’s education, saving your other investments for other pursuits.
These accounts can be passed down to other family members, creating the opportunity for an educational legacy. They can also be a way to avoid inheritance taxes, but you’ll need to consult with a trusted advisor to make that move. If you ever decide to withdraw the money for noneducational expenses, you have that option. There may be penalties, and you’ll need to pay taxes on earnings, but the benefits may still outweigh the fees.
As with any savings or investment strategy, it’s important to weigh your options and assess your risk tolerance. Dig into the options available to you and compare them to your retirement savings goals and needs. Before you make a major change, consult with a tax or financial advisor to ensure you’re on the right track.
Once you’ve updated your retirement savings strategy, it’s time to get back to earning more and enjoying life before retirement. You can do that with confidence, knowing you’ve made strategic decisions that your retiree self will appreciate.