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How to Maximize Your Retirement Contributions

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How to Maximize Your Retirement Contributions

We all know that we need to save money for retirement. We probably know we aren't saving enough for retirement as well. OK, maybe you are, but I'm certainly not. Anyways, no matter the amount you want to make sure your investing your money as wisely as possible. Here is the order of retirement contributions I recommend for the average family. If you are incredibly poor, this is obviously more difficult to do and if you are obviously rich or run your own company the tax implications may be different. If you're so rich though just go get an accountant and financial adviser.

The Company Match

The first place you begin any investing career is the company match. If your company is willing to give you money to invest you should take advantage of it. Even if the company only matches $1 for every $2 you invest that is still a 50% return on your first year for the money. That is awesome. So take advantage of the boost to your returns and invest just enough to earn the full match from your employer.

Pay Off Debt

This isn't exactly a retirement contribution, but by paying off debt you will have more cash flow to invest in savings, plus you'll get out of crippling high interest payments. People who are debt free generally invest more money in their life carrying them further in retirement.

Moving to the IRA

After you max your employer match you want to max out your Individual Retirement Account. For most that is $5000 per year. The reason I prefer the IRA to the  401k is because you can literally invest in anything you want. There are ways to buy rental properties in your IRA if you're interested. You can also choose all of your favorite mutual funds and find ones that invest in the style of stocks you're interested in without all the high fees. The 401k of most companies has limited choices in mutual funds and bond funds in order to make good money for the money management company. Often the 401k doesn't even have any index options because the fees on such a fund aren't that great.

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Now Max the 401k

If you still have money to save for retirement your next step would be to max out your 401k or equivalent work tax deferred retirement account. Some would argue that their money is better placed in their own investments at this point, but now is not the time yet because you just can't tackle the tax deferred growth. If you max out your account and you are in the 30% tax bracket you will save nearly $5000 a year by putting in $15,000. Then you add on compounding growth without paying taxes every year and you end with a very large retirement account. I recommend you pick the lowest fee funds that is still in stock equities for your 401k and then choose a different sector in your IRA where you can find a lower fee fund.

Time to Invest in Annuities

Now you want to buy annuities, specifically tax deferred annuities. Here there is no limit, so if you have no other uses for your money (pay off debt, start a business, etc) investing in mutual funds within your variable annuity is a good choice. The fees are steep, but this is generally offset by the continued tax deferred growth. Also, variable annuities will usually never force you to take minimum payments, so if your 401k, IRA, social security, and other retirement savings carry you through the golden years. If you want to learn how to purchase my purchase structured Settlement

Word on the street is...

Obama proposes exempting smaller retirement accounts from mandatory withdrawals
Buried in President Obama's budget plan for fiscal 2013 is a proposal that would gradually exempt Americans who have less than $75000 in their tax-deferred retirement accounts from having to take required minimum distributions after they turn 70.5.
Treasury Proposes New Rules for Annuity Options in Retirement Plans
Proposed rules will reduce the administrative burden of partial annuities so that retirement plans can more easily offer a partial annuity option. A second proposal will make a different kind of annuity - a longevity annuity - more attractive to ...
COLUMN-'Stretch' IRA tax shelter on the chopping block
By Mark Miller Feb 14 (Reuters) - Inherited retirement accounts are truly one of those gifts that keep on giving because heirs can benefit for many years without much tax burden, but Congress is starting to talk about curtailing breaks on the accounts.
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