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Cents and Sensibility Guy Steele |
Look for creative ways
to fund retirement plansIf you've got an IRA or an employer-sponsored retirement plan, such as a 401(k) or 403(b), you've already taken a big step toward achieving the retirement lifestyle you've envisioned. But if you're not fully funding these tax-advantaged accounts, you're missing out on a chance to accelerate the progress toward your goals.
Just how much money can you put into these plans? For 2003, you can contribute $3,000 to a traditional or Roth IRA; if you're 50 or over, you can put in an extra $500. You can also put in up to $12,000 to your 401(k) or, if you work for a nonprofit organization, to your 403(b). And if you're 50 or over, you can contribute an extra $2,000 to these plans.
Of course, for most of us, these are good-sized sums of money -- and it may seem hard to come up with the full amounts. After paying your monthly bills, you might not think you can afford to put away more into your retirement accounts. But there may be steps you can take to uncover, or at least redirect, financial resources you can apply to your retirement savings.
Here are a few ideas to consider:
>> Set up a bank authorization. If you have a 401(k), you are probably automatically deferring part of your paycheck into your retirement plan. And you can follow the same basic mechanism to fund your IRA. By setting up a "bank authorization," you can have money moved directly from your checking account to your IRA each month. When you "pay yourself first" through this type of arrangement, you won't have a chance to spend the money on other things.
>> Put your raises to work. If you receive an annual salary increase, consider raising the percentage of your 401(k) or 403(b) contribution. At the very least, increase your contribution enough to earn your employer's match, if one is offered. By not putting in enough to gain the match, you are literally walking away from "free" money.
>> Consider methods of "freeing up" funds. If you can consolidate your high-rate credit cards into one lower-rate one, you may be able to free up money each month that can then go to your IRA. Also, if you're refinancing your mortgage, you may also come up with funds that can then go to your retirement accounts.
>> Get help from your Uncle Sam. Depending on your income level, you may be able to receive a tax credit for contributing to your IRA, 401(k) or 403(b). If you're married and file jointly, and your adjusted gross income is $50,000 or less, you may be able to claim a tax credit ranging from 10 percent to 50 percent of your IRA, 401(k) or 403(b) contribution. (The maximum contribution available as a basis for the credit is $2,000). If you qualify, you can claim this credit in addition to any tax deduction you receive from your employer-sponsored retirement plan or traditional IRA. To determine your eligibility for this tax credit, consult with your tax adviser.
By taking these steps, or others you may discover, you can put more money to work for you in your tax-advantaged retirement accounts. Take action soon -- because the more time you have to build your savings, the better off you can be.
Guy Steele is a financial planner and head
of the Pali Palms office of Edward Jones. Send
planning and investing questions to him at 970
N. Kalaheo Ave., Suite C-210, Kailua, HI, 96734,
or by email at: gsteele2@pixi.com